The Great Divide

6 January 2012

I attended the launch of David Roodman’s “Due Diligence: An impertinent inquiry into microfinance” which played to a packed house of practitioners and representatives of the larger International Development Community. I haven’t read more than the opening chapter of the book and so I shouldn’t comment yet, but I will, based on David’s remarks and a briefing paper he distributed (which can also be found on his blog

David is of the “microfinance has zero impact on poverty” school which holds that, based on a handful short term (18 month) “Randomized Control Trials”, the benefits of MF as a tool to fight poverty have never been demonstrated. He does not go as far as Milford Bateman (“Why Microfinance Doesn’t Work”) in arguing that microfinance actually exacerbates poverty, but rather argues that it does “provide useful services to millions of people in a businesslike way.”

I suppose it is an indication of the state of the industry that those of us who have dedicated most of our working lives to channeling financial services to the poor have to take some encouragement from that characterization.

I’ve learned to sit still while listening to people decry how we practitioners have “oversold” the impact of microfinance on poverty, that it can’t by itself pull people out of poverty, doesn’t empower women etc. My problem is I know that it can do these things, and that the key factor is not how poor a person is to begin with, but rather how determined he or she is to get out of poverty. Had we 25 years ago, as Roodman recommends in his synopsis, “eschewed any drive to extend credit to the poorest”, then many of FINCA’s most spectacular success stories would never have happened.

To be fair, David and I have different perspectives, I having lived through the “golden age” of microfinance when the first mover clients were the most entrepreneurial people in their villages and realized windfall profits when moving off credit from loan sharks at 10% per day to FINCA loans at 3% per month. By the time David arrived on the scene, microloans had become easy to obtain in many markets, drawing in more marginal microentrepreneurs whose businesses faced more competition and steadily declining returns. He naturally — but erroneously — concluded that we all “made up” the more dramatic success stories.

More to come, once I read the book.

Rupert Scofield


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