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Prior to a seminar I hosted at the MPIfG in July with Milford Bateman, I published a review of his book Why Doesn’t Microfinance Work? (reproduced by several other sites). When the book was released this summer, it sold out its first print run within four weeks. It was the basis for an article (with a great cartoon) in the Dutch daily De Pers. It introduced a wider audience to the fundamental doubts surrounding microfinance. It also seems to have made Milford Bateman a fair share of enemies.
My review was resoundingly positive, since I felt that the book expressed growing concerns about microfinance’s impacts and legitimacy with great clarity and poignancy. What astonishes me is the type of criticism and hostility which has greeted the book. While the book sparked some general neutral publicity, the in-depth reviews ranged from cautious praise for raising important questions to heavy-handed attacks on Bateman’s academic integrity.
Some recent reviews:
negative
David Roodman @ cgdev: “I am allergic to (as I perceive it) sloppy thinking …Bateman’s passion seems to lead him to select and distort evidence. I find it hard to fully engage with a piece of analysis in which the conclusions so seem to drive the evidence … I don’t think you need to read this book.”
Liz Blase @ wokai: “We urge that readers not fall prey to Bateman’s infatuation with short-term profits.” (??)
positive
Duncan Green @ oxfam: “A passionate polemic that takes on a development shibboleth – sometimes it feels as though doubting microfinance is as heretical as criticising Nelson Mandela. But Bateman does so.”
Phil @ this blog: “The first book critical book capable of crossing the border between academia and the lay world … The proverbial ‘book’ on why (this) microfinance is not an adequate response to poverty.”
in between
Malcolm Harper @ microfinance focus: “Few readers will agree with everything in it, and most will be irritated by some of it. All of us, however, should think carefully about what Bateman writes.
H-D Seibel: “There is nothing subtle about Bateman’s arguments… The one thing that concerned me was him framing his argument as a war of ideologies… Despite my reservations, Bateman’s book is a must read.” (published on devfinance)
Fehmeen @ microfinance hub: “While some welcome this opportunity to re-think the basic microfinance model, others deem some of his claims exaggerated… We think this book is a worthy effort.”
To me, the intensity of the reactions to Bateman’s book is a gauge for measuring just how worried many in the development industry have become about their poster child. I get the impression that a systematic critique of microfinance touches highly sensitive nerves with many researchers and industry insiders, whose reaction is to challenge the person rather than the argument. Read the rest of this entry »
One of the things that make blogs particularly interesting are series. The “series” series recommends series at related blogs. This time, Phil takes up the initiative and introduces a series he has particularly enjoyed: the book chapter releases on David Roodman’s Microfinance Open Book Blog.
Okay, maybe technically this isn’t really a series. But since February 2009, when David Roodman (who is a senior fellow at the Center for Global Development CGDEV and also the father of the fascinating “Committment to Development Index”, CDI) began sharing the progress he was making on his new book, his blog has become one of the most prolific and insightful blogs about microfinance. And on that blog, the central recurring theme has been the book chapters which David has incrementally released.
David’s book (which, it seems, is now finished to a draft level) was presented via occasional single-chapter releases. These frequently produced interesting discussions among the blog’s growing readership, which notably includes an array of high-profile development intelligentsia members like Harvard Professor Lant Pritchett, senior cooperative banking expert Hans-Dieter Seibel, and development über-academic Bill Easterly.
Perhaps it is less the book and more the wide range of controversial issues covered – from double-borrowing and microfinance bubbles to the heavy-hitting disappointing RCT impact studies (and the industry’s disappointing reaction to them) – processed through Roodman’s brilliant analysis, which have led his readership to read his take again and again.
Most laudably, this blog also gives outspoken microfinance critics like Milford Bateman an open forum to engage in cultured discussion with microfinance’s supporter community away from the less tolerant industry-operated “discussion” forums. I too don’t see eye-to-eye with David on many issues concerning microfinance, and would often consider a more critical tone to be justified. But his blog and the upcoming book definitely provide some of the sharpest and most thoughtful discussions of those questions which currently shake and shape the microfinance industry (against its will), and make microfinance the controversial subject which it is. Big props.
(phil)
The microfinance industry, which once set out to protect the poor from extortionate moneylenders, may depend on those same moneylenders for its business success; and these moneylenders in turn may be profiting from microfinance. So reports the Wall Street Journal today.
Ketaki Gokhale is a Stanford University graduate student currently working for the WSJ as this year’s Daniel Pearl Memorial Journalism Intern. Earlier this year Gokhale reported on credit bubble tendencies brewing in the microfinance sector in India, an article which provoked controversy and some indignation among the microfinance industry and its advocates.
One of Gokhale’s interviewees reported being overwhelmed by the sudden and forceful supply of credit in her neighbourhood. “Suddenly, in the shantytown where she lives, lots of people wanted to loan her money. She borrowed $125 to invest in her husband’s vegetable cart. Then she borrowed more.” The lady descended into a borrowing binge, at the end of which she even bought a television. She was forced to sell virtually all of her assets and still remained in debt worth around a quarter of her annual income.
Refinancing microfinance loans through the grey market
Gokhale has now followed up her earlier investigation into the dark side of microfinance and uncovered structural complementarities and interdependencies between the microfinance business and local moneylenders. The irony and sadness of the story is that microfinance originally set out to put these same moneylenders and their practices of extortion out of business by offering the poor loans which they could afford. Moneylenders in India are reported to charge interest rates even beyond 1000 per cent annually, leading to debt bondage and other existential problems for the poor.
The entry of microfinance banks into the market may have pushed down the interest rates of some moneylenders, but paradoxically the moneylending business appears to be growing. As Gokhale reports, more than 80% of registered moneylenders in Mahabubnagar started their businesses after the year 2000, which coincides with the phenomenal bout of growth in microfinance in India in the past decade.
It appears that many microdebtors cannot afford to comply with the extremely rigid repayment schedules of microfinance banks, so they must turn to moneylenders, thereby re-financing their loans through the grey market – the market which microfinance sought to protect them from. Read the rest of this entry »
Small loans for women, often organised in groups, to build their own businesses – that’s a standard model of microfinance, and many microfinance organisations are focused on women. In fact, it used to be the case that 95 percent of Grameen Bank’s borrowers were female.
Through the establishment of self-owned businesses which provide an independent income stream, it is theorised (or often simply claimed) that women will be empowered thanks to microcredit. A compelling argument it is, but the evidence, sadly, is thin.
Many men send their women to obtain loans which they themselves would not be eligible for, as Weber (2002) found. Thereupon they allocate the loan within the family as they see fit, possibly buying a rickshaw which they themselves pull, or on-lend to a relative with an existing business. However, if repayment becomes a problem, it is the woman who is held responsible by the microfinace organisation, and is then subject to legal and social sanctions. Read the rest of this entry »
“It never got weird enough for me.”
– Hunter S. Thompson
Development and finance are increasingly intertwined, and both fields have over time produced their share of strange but successful, but also many odd and failed ideas. Here are a few recent bits of news from the weird world of finance and development.
# Since February, East African villagers can buy themselves carbon-efficient stoves to replace their tradtional fireplaces, financed via microcredit. This contribution to reducing global warming then pays off for them via carbon-offsetting credits which they can claim via mobile phone SMS.
The father of this brainchild, Carbon Manna Unlimited, estimates that in this way, an African family can save around 3 tonnes of CO2 per year, earning them between 20 and 30 US Dollars worth of carbon credits on European markets…
Carbon efficiency, mobile banking and emissions trading applied to African cooking – it sounds adventurous, to say the least. But I was also wondering whether, sociologically speaking, is this an immense act of pragmatic creativity or rather simply one mimetic behaviour? After all, emissions trading, mobile technology and carbon footprint reduction are recieved wisdom at the moment in the north.
On another sociological note, the project’s name, Carbon Manna (TM) Xchange, has a both distinctly religious and capitalistic ring to it – what would Weber say? Read the rest of this entry »
I hate to say “I said so”, and I know it’s horrible style. But sorry, this issue is too important to be ignored. My fears about the credit crunch and microfinance are being confirmed.
The current economic crisis threatens to set back development and poverty reduction by years. Who coul really be surprised? In a globalised world, when Wall Street sneezes, everyone else catches the Flu. Read the rest of this entry »
Since the beginning, proponents of microcredit have argued that they have found a self-sustaining, profitable route to reducing poverty: borrowers repay loans with enough interest to cover the costs plus an increase in the bank’s capital base, plus a payout for its owners. Sceptics of this story point to the fact that most microcredit programmes are still subsidised by donors. They argue that this is because many borrowers cannot afford to repay so dearly, and that the cost of capital should be lower in order to help more and poorer people.
Welcome to the ‘sustainability versus outreach’ debate. At the core, it is about the question whether incentives or impact matter more. Time to examine the arguments. Read the rest of this entry »
In the popular literature surrounding microcredit (or microfinance), a number of claims is repeatedly made which deserve a closer look. The mass media are full of heartwarming stories, anecdotes and PR-like representations of MFIs’ work, showing the apparent power of microcredit to improve the lives of the poorer inhabitants of this planet. In fact, many academic productions make similar claims without providing sufficient evidence to back them up.
In this way, the impression is being created that the development industry has found a panacea for poverty; a dangerous insinuation which can only lead to disappointment. Over my next few blog entries I will address and critically illuminate some myths – insufficiently supported claims or untested assumptions – which currently stand in the way of a balanced assessment of the true powers and drawbacks of microcredit as a development tool.
(phil)
Could the economic crisis harm microfinance? It seems possible that high expectations paired with a collapse in funding (archetypical elements of bubbles when bursting) may erode confidence in this development tool, which – for right or wrong reasons – is currently a dominant element of international development governance.
Recently, I got my hands on a publication by Deutsche Bank Research from December 2007, predicting a fantastic acceleration of growth in the microfinance industry over the coming decade. That they would publish such a view is unsurprising, given that DB is the issuer of several microfinance investment funds; in fact, according to this paper, for every Dollar currently invested in microfinance there are a full ten Dollars of untapped demand. DB expect this situation to be remedied until 2015 by a ten-fold increase in investments from the private private-sector, bringing the total volume of investments in microfinance to 20 billion Dollars (about six times the equity value of Commerzbank). Private-sector investments already more than trebled between 2004 and 2006.
Does this kind of prognosis sound familiar, in any way? Certainly, predictions of ever faster growth in a niche market in which most firms have not yet earned a single Dollar, based on wild assumptions about unmet demand, were all too common practice during the dot.com bubble of the late 90s.
Would it be too pessimistic (or just too early) to coin the phrase “microfinance bubble”? Well, maybe it just got coined here, and possibly for good reasons. Read the rest of this entry »
governancexborders.com 