Suddenly, out of the blue, a debate about microfinance and child labour has erupted. Why?
Underage work caused by microloans is an uncomfortable topic for the microfinance sector, given the moral panic easily associated with child labour. It’s nearly impossible for the industry to publicly make dismissive or nuanced statements on the issue. David Roodman (self-styled “impertinent inquirer“) has now stepped up to the plate, publishing a thought-provoking short essay on his blog which critiques recent moves towards – or rather: rumours of some consideration being given to the idea of – enshrining policies against child labour in the microfinance sector’s transnational self-certification schemes.
Yes indeed, what are we going to do about it?
Photo: Children’s Bureau Centennial, Creative Commons Attribution 2.0 Generic
Roodman assumes Hugh Sinclair (self-styled “microfinance heretic“) to be a driving force behind this. While I have my doubts about it being that simple, I do think that, while not a driving force, Sinclair could be a contributing factor.
Which, incidentally, brings me to my hypothesis about the actual issue of child labour. Is microfinance a driving force? Hell no. Could it be a countributing factor? Logically yes. Consider these two very simplified causal chains:
(A) 1. Microloans raise the entrepreneurial activity of families. –> 2. This allows families to raise their incomes. –> 3. Some families can afford to remove their children from work and send them to school. –> 4. Child labour is reduced.
versus
(B) 1. Microloans raise the entrepreneurial activity of families. –> 2. This requires more family members to work. –> …
… at which point we get two possible scenarios:
(B.i) 3. This allows them to raise their incomes. –> 4. Some families can later afford to remove their children from work and send them to school. –> 5. Child labour is increased in the short run, but reduced in the medium/long run.
(B.ii) 3. This doesn’t allow them to raise their incomes. –> 4. Families cannot afford to remove their children from work and send them to school. –> 5. Child labour is increased.
Very simplistic, admittedly. But not too simplistic, as Asif Dowla’s defense of microfinance (comment #1 on the Roodman blog) shows:
After a few rounds of successful loan utilization, the parents send the children to school full-time. Because the successful use of credit eliminate [sic.] the root cause of child labor–poverty, microfinance over time will reduce the need for child labor.
Dowla (author of “The Poor Always Pay Back“, a wholesale endorsement of Grameen with a mystifyingly threatening title) even adds the twist that microfinance actually “rescues” children in Bangladesh from servitude and returns them to the home business, thus “replacing an oppressive form of child labor with a benign one”. Thus, Dowla seems to be suggesting a combination of A and B.i.
Give a microloan, rescue a child, it’s so simple, and we have a novel microfinance success story. This one even forgoes the usual minimum standard of evidence, a name and a smiling beneficiary photo; but as a “native” Dowla claims to know these facts (from the hiring or the employed side?) about underage work in Bangladesh.
Part of the problem or part of the solution?
So, does the causal chain (A) withstand scrutiny? To begin with, both chains A and B simply assume an increase in entrepreneurial activity (link 1), which is hardly a solid assumption: Karlan/Zinman in Manila found that targeted businesses shrank, Banerjee et. al. evidenced only the smallest of increases, and even John Hatch of FINCA estimates that 90 percent of loans go into consumption. But let’s assume it. Still, link 2 is invalidated by the fact that no impact study has plausibly demonstrated rising incomes thanks to microfinance, as summed up infamously by Duvendack et.al.’s “foundations of sand” and Roodman’s “zero”. Frankly, without unbiased evidence for positive impacts, we can’t follow this chain. Which, in turn, gives us no basis for believing that (3) families normally can afford to remove their children from work and send them to school, thanks to microfinance, and (4) that child labour is actually reduced.
What about chain B then? It asks who does the increased work in the family business (link 2). Here, for instance the Karlan/Zinman study found that microenterprises with loans actually dropped paid employees, but took in extra unpaid employees in female-run enterprises (both signifcantly). Logically, a small family enterprise means more family helpers, which are likely to be minors, since their opportunity cost on the labour market is smaller and they may not be in school to begin with (fees, etc.). Additionally, microloans are expensive, and free help may be the only way to make payments. Anyone with developing country experience will be aware of the myriads tiny shops and cottage industries, as well as the kids working in many of them. Microfinance funds exactly those kinds of enterprises.
Thus, chain B boils down again to the question of raised incomes. If allowing a child to work in the family enterprise allows it to contribute to a wealth increase (scenario B.i), then child labour still increases in the short run, but decreases in the long run as the same child (or its younger siblings) go to school later. However, if that income increase isn’t real (scenario B.ii), but the increased workload in the microfinance-funded enterprise still must be done by family members, child labour simply increases.
As noted, the impact evaluation literature would point to this (B.ii) as the likeliest outcome. So should we expect microfinance to actually decrease child labour and improve school attendance? Hardly. To phrase the conclusion from this carefully: it is plausible that microfinance increases child labour, but we conversely can’t expect it to decrease child labour.
Is it a problem at all?
But is this a problem? Should we be concerned? Roodman’s four “challenges” suggest that we shouldn’t be. Here are serious rebuttals to each:
- Roodman says that the (il)legality of child labour is a poor compass, because many of the things poor people do to survive are illegal anyway. I’ll grant that, but I’ll suggest the argument is spurious and Roodman should distinguish between sensible and unsensible laws; preventing exploitation of children by and large seems good. Also, I’ll suggest that requiring clients to adhere to the law is wise business strategy for microfinance in the long run; it avoids trouble. Sinclair’s comments rightly point to the imperialism of elevating “our” development intervention (microfinance) over “their” laws. And while the comment about “coyote loans” and “pimp finance” may be extreme, public image is a key asset for the microfinance industry, and one it’s been squandering rather recklessly of late. It would be worth remembering how cockfighting loans aroused a number of Kiva lenders; “Nimble Fingers Loans” may go down somewhat worse.
- Roodman doubts the ethics of telling struggling parents (or their lenders) what the right choice is, and points to child labour in erstwhile Europe and America, as well as the poor quality of schooling (for some reason he refers to a book chapter by Lant Pritchett lamenting the lack of ambition in, rather than the usefulness of, universal schooling). So: did our forefathers work as children? Yes. Is schooling in many poor communities shoddy? Yes. Does that make child labour any better? We understand the value of education better now than we did in the 18th century; some education is better than none; and compulsory education brought the breakthrough in most societies in the past. So let’s not “kick away the ladder” by justifying child labour with bad schooling and with obscure references to “free choice”.
- Roodman says the evidence is inconclusive. But findings like these from Bangladesh should be worrying nonetheless: “The results overwhelmingly indicate that household participation in microcredit programs has adverse effects on children‘s schooling, which are especially pronounced for girls. […] It appears that children taken out from school are more likely to work in household enterprises that are set up with microcredit than in other types of work.” (Islam/Choe: 30) I can’t rise to Roodman’s level of sophistication (sophsitry?) in questioning the econometrics of this study, and perhaps the studies paint an inconclusive picture overall. But the same applies to microfinance effectiveness overall, yet the industry still proceeds on the assumption that microfinance is useful, despite no evidence to prove it. If Roodman wants to be consistent in his agnosticism, he should call for a halt on microfinance activities in the same way as he is calling for a halt in anti-child labour regulation activities. But I haven’t seen him doing that.
- Roodman’s final point, about principals and agents, questioning whether microfinance institutions can actually monitor child labour, and warning against the hypocrisy of rules without enforcement, is perhaps the most serious. A ban on microfinance-funded child labour could feasibly be unenforceable. But as an ethical question: should we knowingly be giving loans which we expect to increase child labour, while calling it development, and yet do nothing? Being aware of the problem while ignoring it, even sweeping it under the rug, as opposed to trying to do something about it (and risking failure), seems a worse form of hypocrisy than the one Roodman is worried about.
So, yes, child labour being illegal is one good reason not to finance it; it’s illegal because it harms vulnerable people, instead of being some rational free contract. Yes, it’s right to tell parents to send their kids to school (and even better to give them a good reason to). Yes, we aren’t 100% sure that microfinance increases child labour, but we should be worried that it plausibly does. And finally, yes, the sector should try to do something about it; a good start perhaps being the requirement for microfinance institutions to adhere to local laws and UN conventions on the issue – why not?
Awareness is a good start
Right now this debate is about acknowledging or denying that there might be a problem. Only an acknowledged problem can be investigated and, if need be, solved; otherwise institutional blindness will prevent any action. If microfinance isn’t a driving force behind child labour, but a contributing factor, that seems a serious enough issue to warrant action.
Microfinance enthusiasts are quick to praise any positives they can find, while downplaying or ignoring negative consequences. If – and that’s a real “if” – the microfinance industry wants to do more than quick and ruthless business with the poor, it has to match self-praise with serious attempts to minimise potential harm. Binding transnational guidelines against funding enterprises which use child labour would be a start; then monitor the effectiveness of the guidelines; then improve and further develop the measures.
I’m the first one to lament the present futility and window-dressing, cosmetic, toothless nature of industry-initiated self-regulation in microfinance; where it has failed, governments have tended to step in, as microfinance practitioners should be well aware of. But at the very least, clearly stating the norms which microfinance institutions should adhere to offers a standard to hold them accountable against. Microfinance clients or social movement actors could then point to the promises given and criticise where they haven’t been kept, possibly leading to improvements.
Pragmatically, of course, the question boils down to what the kids will be doing if they aren’t working on the shop floor or the family farm: going to school? or working down a mine? (Dowla’s point being about better or worst forms of child labour). On questions of alternatives, the microfinance community and its academics usually gets caught short, seeking the solution only in more or better microfinance. Let’s not lose sight of the alternatives. Free school meals have proven very effective at improving attendance, and cash transfers at improving enrollment. Obviously, worthwhile and free primary education would be the best solution, but many countries are still far from being able to provide such education. Not exacerbating the problem with the wrong loans in the meantime seems a reasonable goal for the microfinance industry.
(phil)
governancexborders.com 
11 comments
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March 12, 2013 at 18:06
David Roodman (@davidroodman)
Phil,
Thank you for so thoughtfully grappling with my post.
As for the replies to my four arguments.
1. How can it be “that requiring clients to adhere to the law is wise business strategy for microfinance in the long run” if most of what is done with microfinance is inherently illegal? Shall MFIs not lend to squatters to buy good roofs? Not lend to corner food vendors who fail to register with tax authorities (and who as a result are hit up for illegal bribes by police)? Won’t MFIs just need to shut down? You could say that the legality argument is spurious—I agree ethics matters much more—in which case advocates for doing something about child labor and microfinance ought not to lean on it either, which is the point I was attempting to make.
2. Your response to the ethics issue appears to be: education is crucial and “let’s not ‘kick away the ladder’ by justifying child labour with bad schooling and with obscure references to ‘free choice’.” The reference to obscure references is obscure: I don’t know where I made such a reference. My concern is not for the autonomy of parents but for the great harm that is often done by well-meaning outsiders telling people what to do, thinking they know better. Sometimes the outsiders get it right, sometimes they don’t. If I understand right, your view is that in the realm of microfinance they’ve mostly gotten it wrong.
3. On the evidence, the post mentions that the Karlan & Zinman Manila study finds an increase in child labor among female borrowers. That is true (see bottom row of Table 5 of the draft paper at http://www.econ.yale.edu/growth_pdf/cdp976.pdf). However, I don’t put much stock in this statistical result. As I discuss in my review of that study (http://blogs.cgdev.org/open_book/?p=1183), one needs to factor in the sheer number of hypothesis tests Karlan & Zinman perform—something like 275 in that draft. So you expect about 27.5 of the results, by pure chance, to be significant at 10%, like the result you cite. Responsible interpretation therefore requires looking for consistent patterns across results. In the case of “Number of Paid Helpers,” for example, the change is large (compared to the one relevant for us, “Number of Unpaid Helpers”) and is much more consistently significant across the five groups (all borrowers, female, male, those above median income, those below). In contrast, K&Z’s increase in “Number of Unpaid Helpers” among the 948 female-borrower households is marginally significant and quite disappears in the full male & female sample, which is only a tad bigger, at 1,113 households. That makes the result look fragile. In more recent work, Karlan and Zinman use a new technique, developed in http://j.mp/WFMtz4, to adjust for multiple hypothesis testing. I suspect that adjustment would make the result cited here go away. The right thing to do, seemingly, would be to review all the good, relevant studies, as I did and look for the overall pattern. The first-order pattern is zero impact. The study you quote from, Islam and Choe, is really weak. And if you can’t match my sophistication (sophistry?) in understanding it, you might want to resist quoting its juicy but wrongly confident conclusions.
4. I agree the argument about principals and agents is probably the most decisive, and I owe much to Hugh for it. You ask, “should we knowingly be giving loans which we expect to increase child labour, while calling it development, and yet do nothing.” The answer is of course not. But who actually is in that position? Not me, nor most microfinance investors, nor perhaps even most MFIs. We all lack much information about specific instances; and the best overall evidence is of zero net impact. Saying that is not “sweeping it under the rug.”
I endorse your closer: let’s not forget about alternatives. In general, I favor putting less money into microcredit portfolios, one benefit being to free up funds for other things.
–David
March 12, 2013 at 21:22
philmader
David, I’d actually been preparing a post on the issue of MF and child labour for some time, when you came out suddenly – so my take had to come as a response to yours.
It’s good we see eye to eye on the importance of alternatives. I wouldn’t have minded you engaging with the logic of why microfinance may contribute to child labour, but since you’ve only responded concerning your four points, I’ll quickly address them while adding that this discussion seems to lose sight of the bigger picture: the standards microfinance wants to live up to, first as a matter of principle, and second as a matter of preventing harm.
So, in broad strokes instead of minutiae:
1. Legality: Because in the long run these enterprises were supposed to graduate into formality over time, not remain illegal (and possibly hire children) – right? Sometimes the law isn’t just a nuisance, but a reasonable guide between right and wrong; seems (to me) to be so in this case.
2. Microfinance providers have to make ethical choices. They often enough didn’t make those choices, then bad stuff happened. Yes, this whole thing is about well-meaning outsiders trying to do good, so they might as well try do it right. Whether these good intentions overall lead to good outcomes is another issue, but matched with good rules they’d probably do better.
And that sums up my point. Hugh (below) is saying similar things rather more eloquently, so I’ll leave it at this. Questions of effectiveness aside for a moment, step up and be frank: Would you seriously object to adding “Measures to reduce and prevent child labour” as a client protection principle, or as a goal of constructive microfinance in the seal of excellence? If so, why?
The rest really is marginalia:
3. You’re a trained mathematician venturing into the social world, I won’t match your sophistication in the number-crunching world. It’s a published study but hey, you be the expert. I’ll definitely “resist” your debating style.
4. Principals with principles (can) make agents have principles.
March 12, 2013 at 19:13
Hugh Sinclair
David/Phil
I sometimes fear we are missing the point here, on subtle points of debate. Legality is a thorny issue in a sector that thrives off illegality. But protecting children? Do we have no basic morality whatsoever? We can argue all day about whether an APR of 150% is exploitative, but I can hardly believe there is a discussion over whether or not to protect the rights of children. It’s sad to even observe this debate, frankly. When I look at those striving towards an eradication of child labour, towards universal education, and I see the performance of our own supposedly “developmental” sector I am often filled with shame.
A hamburger vendor may fail to wear gloves or keep the meat at the correct temperature or lack the official health & safety certificate. But are we to put this in the same category as a kid denied schooling? The purchaser of the hamburger is probably aware of the risk, and most likely had an alternative. Barring a mass poisoning, what is the downside – an upset stomach? Not nice, but hardly the end of the world. Did the kid denied an education to stack shelves even have a choice? The kid’s downside is an already difficult life ahead hardly made easier lacking the skills to read and write. We might not see the impact now, but we might in twenty years. Does that mean it’s not a problem now?
That brings me to impact. Sure, there’s no definitive proof one way or the other on whether microfinance irrefutably causes child labour. It probably does in some cases, might actually reduce child labour at times, and have no impact in others. On average the overall impact might be zero, as with microfinance in general. So we debate the subtleties of the studies and criticise the econometrics. Great. That’s not doing much to prevent that component of microfinance that is causing harm to kids today. We can’t measure the precise size of this component, so let’s sit on our hands.
I would like to propose an entirely novel idea to the microfinance community. It’s called prudence.
In a world of uncertainties, what can we do to minimize the possible harm we do? Not all drunk drivers kill people, but some do, and it is prudent to ban drink driving. Does that eliminate road deaths? Does everyone obey the law? What about those drink drivers who can drive perfectly safely after a few beers and are therefore, presumably, penalised? We don’t know the extent to which we may be harming children, but why don’t we give them the benefit of the doubt? No one seems to actually be suggesting it is “never”, so we debate the number instead. Did anyone ever find out the number of angels that can dance on the head of a pin?
Did we learn nothing from Andhra Pradesh? Frankly, if David is representative of the views of the sector the answer appears to be no. When the first signs of over-indebtedness and ludicrous over-lending emerged in Nicaragua what did the sector do? When early concerns in India appeared (I believe first aired publicly in the WSJ), what did we do? And now, with evidence emerging that microfinance is once again not the universal panacea for improving the lives of kids, what do we do? Nothing. That’s what we can safely conclude about the beloved sector – it has an uncanny ability to walk into disasters with its eyes shut tightly.
We put our own interests first, worry about increasing costs and reputational risk and subtleties over some data collection process or whatever David’s econometric critique is. Let me put it another way: we side-step the issue.
We have a golden opportunity to actually do something now. Are we going to seize it?
Can we please just stand back one minute? I am suggesting that we make reasonable efforts to limit the potential damage microfinance may have on the lives of children by adhering to the child labour laws that these same countries already possess (lax in many cases by “our” standards). That’s it. Is that so utterly unreasonable?
As Larry wisely points out, VFI are managing. Oiko are managing. Larry didn’t mention ProCredit, who also manage fine. Deutsche Bank and BlueOrchard claim to have such policies. Zidisha has a very clear policy, as does MyC4. Opportunity International are currently finalizing a policy, as are two other MIVs/networks (I’ll discuss these in more detail in a separate post). According to David all these players are fussing over nothing. Or maybe the idea of posting the world’s first blog AGAINST abolishing child labour in microfinance was, with hindsight, not the wisest move?
“You can judge the morality of a nation by the way the society treats its animals.”
Mahatma Gandhi
If you want to see where the true heart of this sector lies, look at how it treats its children.
March 12, 2013 at 21:27
philmader
Hugh, indeed I think the word “prudence” sums up the wisest approach here. The two alternatives, of course, being to foster moral panic, or stick heads into the sand.
March 13, 2013 at 01:19
David Roodman (@davidroodman)
Hi Phil,
I like the way you laid out the possible causal pathways. I would have added the pathway implied by Asif’s comment, that microcredit enables parents to pull their children out of worse labor and engage in better (would have, that is after Asif had reminded me of this). Now of course with a ~billion loans made, all of these causal stories must have happened. The question is which, if any, dominates. And that leads us to the evidence. Does the evidence suggest one dominates? I have argued that it doesn’t. That for me was the bottom line of theorizing, which is why I focused on the evidence.
So do I understand right that you are saying we should shut microfinance down in order to push microentrepreneurs toward legality, long-term? I don’t understand.
If “providers have to make ethical choices” then it could not be the case that they “didn’t make those choices.” Choosing to proceed with only limited effort to limit child labor is an ethical choice, possibly the best available one. As I see it the main alternatives, *roughly speaking* are: wash our hands by shutting down microfinance or do microfinance broad gauge and accept that in some cases it will do harm. Now it’s possible that there’s a major middle way that I’m missing that MFIs really can determine which households are engaging in exploitation and/or illegal activities or can determine which households will reduce exploitation if offered microfinance. But for reasons already stated I am skeptical that very much can be done in this direction, at least for group microcredit, and no one in this discussion has offered strong evidence to the contrary. I could be wrong. But it is also entirely possible that we are in a state of the world in which “doing nothing” is an affirmative moral choice.
What do you mean by my “debating style”?
Yes, I would resist adding such a provision to the client protection principles. Those principles are about modifying MFI behavior in order to protect clients from MFIs. A child labor provision would be about protecting the clients’ children from the clients. Perhaps that logical inconsistency shouldn’t be fatal, though there is a lot to be said, for not freighting any given instrument with too many purposes. At any rate, it points up the issue I’ve already raised. If it’s as hard as Hugh says it is just to monitor MFI behavior, how can we realistically expect to monitor how 200 million parents raise their kids? Until it is shown that there is a practical and substantially useful way forward here, history says suggests that it will lead to well-intentioned rhetoric and institutional hypocrisy. I daresay that’s what happens to the majority of seemingly inarguable principles imposed by outsiders. All the social performance metrics donors are already pressing on MFIs are driving a lot of MFI managers crazy. But they’re part of the price of investment.
Every day people commit illegal acts with credit cards. What responsibility does this put on credit card companies? The answer in practice depends on what is practical. We do not expect the companies to take responsibility for what they cannot know. But neither are they, nor need they be, completely ignorant. I assume they are required to monitor for certain kinds of suspicious activities. But when you move to the small transactions of microfinance, I think less monitoring of clients is practical. Maybe I can be proved wrong, which would be great.
–David
March 13, 2013 at 20:58
philmader
David, I simply don’t think this is about econometrical logic; it’s not a technical issue. It’s about reasoning, ethics, concern. That’s why I’ve outlined why I would logically think B.ii is the most common outcome, and voiced my concern on that basis. Asif’s line is basically B.i, with an added emotional backstory. Which one do you think is most likely to dominate?
My partner happens to work in fraud prevention for financial institutions, so I’ve learned a little about how things work in Germany. If a bank’s client does something illegal using their account, even just with funds held in the account, and the bank knows about it, they have to cut the service. Perhaps that gives the bank a reason not to want to know what is going on in the client’s life, hence there are laws requiring banks make reasonable efforts to know. And likely if the microfinance sector doesn’t engage in reasonable efforts on its own, sooner or later there will be laws. Also, to my knowledge, if you use credit cards illegally or fraudulently in the US, they’ll be revoked.
So far we’ve discussed child labour as a family issue. What about, say, funding an actual sweatshop with children working in it with a microloan? Clearly there is a line to be drawn somewhere, even if neither you nor I know where exactly. You rightly point out that microfinance will have different impacts in different cases, sometimes helpful, sometimes harmful. So try to limit the harmful rather than put the harmful off as inevitable. That seems to me the pragmatic thing to do, short of your two dogmatic alternatives of either shutting down the entire sector or simply letting the chips fall where they may. It’s nothing as extreme as threatening jail sentences if a loan officer catches a kid stacking the shelves or rolling bidis instead of going to school, and in contravention of the law; it’s about saying “If we know you are systematically using children in your enterprise, we won’t lend to you”. Simple.
If there is to be some sort of developmental / life-improving aspect to microfinance (which I am more tempted to doubt the more I listen to you), then monitoring its effect on children should be central rather than irrelevant; assuming microfinance should have long-term impacts, children are the ones really concerned. You end by suggesting that that client protection principles, however effective or ineffective they may be, already place an unacceptable burden on MFI managers. Whose sustainability counts? Elsewhere, you’ve suggested a reduction in microfinance funding overall would be sensible. So I’d say there is hardly any better way to reduce the glut of the sector than separating the wheat from the chaff by tying money to the application of ethical standards.
March 14, 2013 at 14:28
David Roodman (@davidroodman)
Phil, of course this is not just about econometrics. In my original post, I looked at dimensions relating to ethics, law, and institutional dynamics. In turning to evidence, I was equally synthetic, referring to econometric studies and to Hugh’s personal insider’s take on the industry. Surely we cannot answer you question of which story is more likely without resorting to some kind of evidence, be it econometric or our own casual observations of human nature. And surely quantiative social science has something to offer here. That is why we both referred to econometric work, without relying exclusively on it. And essential to leaning on econometric work is deciding how much weight to put on various bits of it.
You are right that the evidence we have suggests an average stimulus to entrepreneurial economic activity without an increase in income. Certainly your B.ii is compatible with that. But so is this: women (or men) work outside the home less in order to combine work and care for small children; wages go down and profits go up; child labor does not change. How are assess the frequency of these two stories? Back to the evidence. In fact, the evidence contradicts B.ii in one respect: no change in number of kids in school. So we are to use evidence to prune the tree of theories potentially explaining the average impact, let’s do it consistently.
I agree that as we move to larger loans, MFIs can and therefore should take more of an interest in clients’ activities (note the link from practicality to morality). I think things we’ve both just written in the comments are consistent with this point. My concerns stand about the principal-agent problems all along the extended chain.
The complaints I have heard from MFIs about jumping through all the funders’ hoops did not refer specifically to the Client Protection Principles; nor did I. I don’t know if these are viewed as less onerous or not.
Yours with sophistry and dogmatism,
–David
March 14, 2013 at 17:56
Hugh Sinclair
David wonders which of the causal paths dominates following the billion-case sample size. Fair question, but there is no need for one to dominate. Two, or three, may dominate, particularly as we add new (sub-) paths. None may account for over 50%. And even if we take the most upbeat scenario, that microfinance reduces child labour and boosts school attendance in 95% of cases (this is an extremely simplified and hypothetical example!), does this mean we should simply ignore the 5% where the opposite occurs?
I still refer to the principle of prudence: 95% of people may be able to drive a car after five beers and not kill anyone; 95% of gun-owners may never go on a wild shooting spree; 95% of unprotected sex may not lead to transmission of an STD. It’s the 5% that this the problem! That’s why we have laws, guideines, policies etc. Sure, if we can demonstrate that adverse impacts are so trivially small to be considered almost non-existent that may alter the scenario, but is that what the academic papers are suggesting? Is that what common sense and casual observation suggests? Is David saying that bad stuff NEVER happens in microfinance?
I’ve commented on the rest of David’s points elsewhere, I guess we’ll just have to agree to disagree on the rights of children. But I do wish people, such as Smart, would stop banging on about being some sort of Fair Trade label for microfinance. This belittles the (far more effective) Fair Trade movements which do manage to consider child labour pretty high up their list of priorities. Somehow they manage to monitor child labour in coffee plantations and down mines or whatever (not to total perfection, I am sure), and we are apprently entirely incapable of monitoring it in the little shops and vegetable stalls that dominate the microfinance sector.
The very fact that 11 MIVs/networks/P2Ps now have policies on child labour does seem to suggest that THEY think this is worth considering, and I haven’t heard them complaining about the crippling costs of managing this – a point David has not commented on other than to say that having read my book he questions their integrity. He didn’t read my book very carefully, as I do not suggest that all are scoundrels. We can learn a lot from the likes of Oikocredit on this topic. But, this generalisation enables David to maintain his (increasingly fragile) stance on child labour. Likewise, he dismisses a large part of the academic literature on child labour (also supporting his fragile stance) in full, stated knowledge that no one is sufficiently skilled to challenge this. Frankly, judging by the conclusions he reaches, I would rather some other qualified economists provide a second opinion. Are their any such folk on the planet with comparable skills to David’s?
There are valid concerns regarding the intermediaries, which is precisely why we need policies – to put the topic on the agenda and hold institutions accountable. The irony is that if every intermediary acted as Oikocredit appears to act (I am speculating here), the need for child labour policies might diminish!
No one credible is saying there are NEVER negative impacts on children as a result of microfinance. So, let’s work out when the impact is positive and legal and promote this. And let’s work out when it is negative and illegal, and try to prevent it. I struggle to see why some consider this unreasonable.
Evidence is, of course, critical, as David says. But prudence can also save you from syphilis, smashing up your car and getting shot.
March 26, 2013 at 22:48
Asif Dowla
Phil:
Thanks for the plug of my book even though it was not complimentary! Here is a source of evidence of how lack of credit increase child labor from Andhra Pradesh
“How Does Credit Access Affect Children’s Time Allocation?: Evidence from Rural India”
Abstract
Using a unique dataset obtained from rural Andhra Pradesh, India that contains direct observations of household access to credit and detailed time use, results of this study indicate that credit market failures result in a substantial reallocation of time use pattern by children, leading to a significant increase in remunerative work and a similarly significant decrease in leisure time. While the direct impact on schooling time per se does not appear to be large, longer work and shorter leisure could arguably constrain effective learning opportunities of children, hampering human capital formation.
Source: Fuwa, Nobuhiko; Ito, Seiro; Kubo, Kensuke; Kurosaki, Takashi; and Sawada, Yasuyuki (2012)
“How Does Credit Access Affect Children’s Time Allocation?: Evidence from Rural India,”
Journal of Globalization and Development : Vol. 3: Iss. 1, Article 4.
March 27, 2013 at 19:56
philmader
Hi Asif, Thanks for sending this reference which certainly promises an interesting new perspective. Maybe David Roodman has some econometric wisdom on it. Either way I’ll try to take a good look at it and make sense of the findings. Phil
May 29, 2013 at 09:23
The Art of Pointless and Misleading Microcredit Impact Evaluations |
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