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Next week sees a high-profile head-to-head between two of the leading voices on microfinance. In a debate hosted by the United States Agency for International Development (USAID) in Washinton D.C. on Monday, 30 January at 9:00 a.m./14:00 GMT/15:00 CET, David Roodman (Center for Global Development, USA) and Milford Bateman (University of Pula, Croatia) will have alot to discuss.
(P.S. See also below for information about a debate at Harvard University on 2nd February with Guy Stuart.)
Roodman (“Due Diligence”); Bateman (“Why Doesn’t Microfinance Work?”)
The past few years have been particularly turbulent, with a succession of microfinance crises, growing overindebtedness, borrower suicides, disappointing impact findings, and a prize-winning Norwegian documentary contributing to Muhammad Yunus being removed from office as head of Grameen Bank.
The two debaters have met in the past. Bateman first brought a critique of microfinance into the mainstream with his 2010 book, which Roodman heavily criticised. Roodman has made a name for himself as a prolific and insightful blogger with the open book blog he kept while writing the book he recently published.
Whether Roodman’s book (endorsed by Muhammad Yunus) is anything as “impertinent” as it claims to be; what to think of Bateman’s musings about the “end of microfinance?”; and why the best evidence of microfinance’s impact on poverty still is “zero”, will be questions likely affecting the debate as much as the official debate question (which USAID succeeded in making so overwhelmingly dull I fear it may even scare off Washington development brass):
Tom Heinemann’s film “The Micro Debt” has received a lot of flak from the microfinance community. The documentary, posing a sharp critique of microfinance, features interviews with microfinance borrowers, proponents and critics on three continents. It deals particularly critically with the work of Muhammad Yunus and the Grameen Bank in Bangladesh. One response to Heinemann’s criticism has been the production of counter-counter-knowledge (against Heinemann’s counter-knowledge), promoted via Youtube, courtesy of the world’s most trustworthy PR company. Another has been to draw into question Heinemann’s integrity as a journalist, referring to the film as “grossly inaccurate”, “false and defamatory”, and “digging for dirt”.
But “The Micro Debt” isn’t going away. It has been shown in over 14 different countries and awarded numerous prizes. Most recently, last Friday it was awarded the Lorenzo Natali Journalism Prize Grand Prize, a prestigious award for journalistic work granted by the European Union in co-operation with Reporters Without Borders. “The Micro Debt” was selected out of a field of 1,300 contenders and commended as “a shining example of world-class investigative journalism, challenging entrenched assumptions”.
Courtesy of the prize, “The Micro Debt” is now also viewable online.
Part 1; Part 2; Part 3; Part 4
Tom Heinemann was vilified for not whistling everyone else’s tune; now, the Lorenzo Natali Prize is rehabilitating the film and the filmmaker. It shows that telling an unpopular story and confronting received wisdom is still what investigative and independent journalism is about. Conversely, what (if anything) has the world learned from microfinance promotion films like “To Catch a Dollar“? As for the claims of factual inaccuracy levied by Friends of Grameen against Heinemann, a short follow-up segment, to be aired early next year in Norway, may bring more clarity; watch this space.
(phil)
CGAP is the World Bank’s (not-quite-so-)arm’s-length sub-organisation whose role is to promote microfinance. CGAP (“see-gap“) once stood for “Consultative Group to Assist the Poorest“, now it officially stands for “Consultative Group to Assist the Poor”. Actually, if nomen were to be omen, it should probably stand for “Consultative Group to assist (those who lend to) the Poor (and not-so poor)”.
![Giant_Knife_1[1]](https://commons.wikimedia.org/wiki/File:Giant_Knife_1.jpg)
So many functions … but can it cut? Image: Slartibartfass (CC BY-SA 3.0)
I don’t expect CGAP to function as an independent evaluator of microfinance. What I do expect is that CGAP publications have minimum standards of research quality and logic.
The most recent CGAP report, entitled “Latest Findings from Randomized Evaluations of Microfinance” (Bauchet et. al.), however, is appalling on both counts. Nearly everything about this report is problematic. It is racked by wishful thinking – to paraphrase: “we may not have evidence that microfinance does what it was supposed to, but we still believe it works” – and it has a disturbing feel about it, which derives from: (1) what the authors have left out, and (2) the heavy tension between concern for the poor and patronising them.
Few documentaries in the past years can claim to have had as much impact on transnational development as The Micro Debt. Tom Heinemann‘s documentary film, produced for Norwegian public broadcasting, has contributed to a wave of critical reasoning about microfinance, but also to the axing of Grameen Bank’s founder, Muhammad Yunus. While Heinemann wasn’t out to harm Yunus, the documentary’s fallout (as well as the Indian microfinance crisis) was an opportunity for politicians in Bangladesh to remove a weakened Yunus from office.
All in all, The Micro Debt doesn’t shed a good light onto microfinance, and in return has come under fire from the microfinance community, an epistemic community which doesn’t take criticism well. Grameen Foundation in particular has mounted an organised attack on Heinemann and his film, engaging PR firm Burson-Marsteller to disseminate counter-claims and draw into question the film’s integrity. But The Micro Debt is becoming increasingly difficult to ignore or deny. It won in the “Television” category at the Avanca Film Festival in Portugal earlier this year, and may win more awards at the various other festivals internationally where it has been nominated. And it’s going on tour in the USA and Canada this month (see below).
Tom Heinemann: “The Micro Debt- a critical investigation into the dark side of Microcredit” (2010)
The real message of the film is that, after three decades, there is still no concrete evidence that microcredit actually does anything for the poor. Heinemann’s main point is that Western donors have been naive in their enthusiasm about microfinance, and his poverty-stricken interviewees testify that this might even worsen their precarious situation.
A misrepresented film
The film’s director Heinemann visited Bangladesh, the Mecca of microfinance, to check up on the successes claimed by Grameen Bank and other microfinance organisations regarding poverty alleviation. He investigated Grameen’s funding from the Norwegian government (where he uncovered financial irregularities amounting to $100 million) and spoke to numerous academic and practitioner experts. The film also shows him being denied interviews with Muhammad Yunus on several occasions.
Actor Matt Damon makes it sound like a great idea to give small loans to poor families so they can get access to improved water and sanitation. After all, he is the co-founder of the NGO water.org, promoters of the WaterCredit loan:
“Gary, my partner, pioneered this idea of, you give people loans. So, for instance, in a place like India in a slum, the municipality will be pumping water right through the street … If you could give them a loan to connect directly to the municipality, so you pipe the water directly into their house, a 75 Dollar loan, they use that time that they were wasting waiting in line for water – working, they pay off the loan at rates of like 98 percent, 99 percent. And they’re using that time in a more productive way.”
He makes it sound easy and appealing. And it is appealing. I’m sure Matt Damon, who is known for ardently supporting social causes, sees this as a real solution. The trouble is, his model doesn’t tackle the fundamental problems – like piped water actually being in the slum in the first place, which it normally isn’t. Damon also doesn’t contemplate the fairness of asking the poor to pay for this human right with a loan. Will the poor want to pay? Will they even be able to pay? This idea of microfinance for water and sanitation may make an already unfair state of affairs even unfairer.
Earlier this year, I had the pleasure to present a paper at the University of Pula, which was later picked up by Microfinance Focus in a nice article. Since then, the ideas presented in that paper have mushroomed and matured into a more thorough, comprehensive and analytical (and 158.1% larger) piece, which has now appeared as a Discussion Paper in the MPIfG’s series. Read the rest of this entry »
Recently, I’ve been writing a section about the history of microfinance for my dissertation. Having read around a bit, I feel the need to correct a myth that seems all too common among microfinance enthusiasts: that microfinance follows in the footsteps of German cooperative banking. I will admit this is becoming something of a pet peeve. But in fact, microfinance and the cooperative movement have very little in common. Here’s an explanation.
At least not all microfinance histories follow the simplistic story which casts microfinance as an invention of Muhammad Yunus in 1976, essentially saying microfinance has no history. But there is also an account of microfinance which I would call the over-historicised account, which sees microfinance as part of a very long history of credit. Mainly, the idea is that pilanthropists have been using credit to “do good” for aeons because the poor have always needed credit, so microfinance is just the modern iteration of this idea. Muhammad Yunus has even been compared to Friedrich Wilhelm Raiffeisen (by Bernd Balkenhol at the ILO).
≠ 
Can you tell the difference? Muhammad Yunus; F. W. Raiffeisen
But I don’t think the poor have always needed credit (definitely not before the monetised economy), and I don’t believe microfinance really follows in the footsteps of, say, the Irish loan societies or the German cooperative movement. The particular for-profit financialised “social business” commercial enterprise which is modern microfinance bears very little resemblance to anything before it; it is distinctly a product of the financialised capitalism of our time.
In 2002 in the run-up to the USA’s second invasion of Iraq, when he was challenged about the allegations made by the Bush administration about Iraq’s weapons of mass destruction (WMD) arsenal, Donald Rumsfeld made a memorable logical statement: “The absence of evidence is not evidence of absence. … Simply because you do not have evidence that something exists does not mean that you have evidence that it doesn’t exist.”
A parody of Rumsfeld from the (massively under-appreciated) comic series “The Boondocks”. Warning: coarse language.
In terms of twisted logic, Rumsfeld was right: the fact that intelligence couldn’t find conclusive proof for WMDs in Iraq didn’t necessarily mean they weren’t there; their available methods simply weren’t good enough to find them. But empirically, of course, he was wrong: as we now know, the reason why no proof was found for the WMDs was, they simply weren’t there.
Fast-forward to 2011, to a debate about the evidence for positive impacts of microfinance. Six British researchers recently published an exhaustive study (actually a Systematic Review, S.R.); as I explained on this blog, they pulled together all existing 2,643 publications about microfinance’s impact and looked in depth at the best 58.
Their conclusions – which are too complex and fine-grained to really present in a nutshell – effectively: (1) raised doubts about the research designs used so far, (2) re-iterated that the available evidence could “neither support nor deny the notion that microfinance is pro-poor and pro-women”, and (3) suggested that there has been an “inappropriate optimism towards microfinance”. And finally, they suggested that pursuing microfinance without proof that it works bears the risk of not running other programmes which could work better – opportunity cost. Read the rest of this entry »
What is the evidence of the impact
of microfinance on the well-being of
poor people?
Maren Duvendack, Richard Palmer-Jones, James G Copestake, Lee Hooper, Yoon Loke, Nitya Rao
August 2011
London: EPPI-Centre, Social Science Research Unit, Institute of Education, University of London.
A new systematic review of the evidence on microfinance, published last week, is dynamite for the world’s most popular development policy. Madeleine Bunting of the Guardian has already referred to it as “microfinance’s sober reckoning”, likening the findings to a “hangover after a big party”. Bangladeshi news calls it a “damning report”.
Being co-published by the UK Department for International Development (DFID), previously a strong microfinance supporter, this “study of studies” comes from deep within the policy community – a first for a truly critical study of microfinance. The authors (economists and medical researchers mainly based at the University of East Anglia) looked at thousands of existing studies on microfinance. Their conclusions are anything but minced words:
Our report shows that almost all impact evaluations of microfinance suffer from weak methodologies and
inadequate data, thus adversely affecting the reliability of impact estimates. Nevertheless authors often draw strong policy conclusions generally supportive of microfinance. This may have lead to misconceptions about the actual effects of programmes, thereby diverting attention from the search for perhaps more pro-poor interventions and more robust evaluations. (from the Policy Brief)
So, after 30-odd years and $ hundreds of billions of lending, there still is no proof that microfinance actually works. Read the rest of this entry »
It’s great to know that people take note of the ideas we share on this blog. In April, I posted an entry introducing a paper I had recently presented in Croatia, called “Attempting the Production of Public Goods through Microfinance: The Case of Water and Sanitation“. The argument was that water and sanitation, because they have the characteristics of public goods, cannot be provided adequately via private individual credit like microfinance loans.
In a thoughtful article on microfinancefocus.com Katya Jenkins recently re-iterated this point (and quoted the paper). Her basic argument: some organisations are reporting successes, but we have good reasons to be skeptical, and it might not work in every case.
Jenkins makes one very important point at the end, which is that there may be a better case for small self-financing in water and sanitation if we were talking about community systems. Agreed. But microfinance organisations would have to adapt their business models a lot, giving out much larger loans (€ millions rather than hundreds), being far more patient with repayments (slower repayment means slower turnover means lower profits), and actually bothering to “know” their clients’ business (instead of easy and cheap “no questions asked” lending). That’s a long shot from today’s microfinance, even if a select few organisations like ProCredit have taken the step into SME finance; and probably “microfinance” would be the wrong name for it. Read the rest of this entry »
This post is provided by guest blogger Domen Bajde, Assistant Professor of Marketing at Faculty of Economics (FELU) at the University of Ljubljana/Slovenia. He is also running a personal blog at bajde.net.
In one of his depressingly amusing anecdotes Ronald Reagan suggests that in the US ‘War on poverty’ (declared by Lyndon B. Johnson two decades earlier) ‘poverty won.’ In the decades that followed, Reagan’s smug conclusion has resonated with many who have either lost faith in organized political/governmental action against poverty or have altogether refused to conceive of poverty as an issue of governance. Similar qualms have been raised in regard to nonprofits’ and charitable organizations’ ability to effectively besiege poverty. Not surprisingly, the ‘foot soldiers’ of the anti-poverty regiment (i.e., regular citizens/donors) are often overwhelmed by the endless charity appeals and a profound sense of hopelessness.
In our collective efforts to discover (create?) ‘fresh’ champions in the ongoing war on poverty, many heads have turned to business. Philanthropy-business hybrids, such as venture philanthropy, philanthrocapitalism or social entrepreneurship, have become central to contemporary pursuits of poverty alleviation. These hybrid alternatives are often depicted as an unproblematic marriage of economy (self-interest, resource management) and philanthropy (social values, charitable giving). Due to their supposedly apolitical and non-ideological nature they appeal to individuals of varied political convictions and domiciles (globally, so to speak). Read the rest of this entry »
governancexborders.com 