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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 »