Very good question from KT on post of my recent interview … just the kind of questions I like to ask! We need to have an open dialog on the outputs/results we are expecting/hoping for.
Dave, in the interview you mentioned: “microfinance has demonstrated, and it’s one of the few tools that I’ve been able to find historically that has had a large impact on actually lifting people out of extreme poverty on a sustainable basis and at a large volume”. Do we have any hard evidence of that? In 2006, Economist magazine concluded that while “heart-warming case studies abound, rigorous empirical analyses are rare”. Bangladesh is not one of the development success stories by any standards. Out of 7,000 MFIs around the world, fewer than 100 claim self-sufficiency.
I am not trying to criticise microfinance as such but it looks like the claims that it as a successful development tool are really exaggerated.
Here are a few thoughts:
- There have been a dirth of studies documenting the long-term impact of microfinance. I did write about one I read titled Measuring the Impact of Microfinance commissioned by Grameen Foundation. This has some data.
- I think there are a few reasons that there are few studies on microfinance impact:
- Microfinance is a relatively new service. There have been a few organizations offering microfinance for 30+ years, but the huge growth in microfinance has occured in the past 5 years and so long-term results aren’t available for most of MFIs.
- Most of the successful (in terms of # of clients) MFIs have focused on growth, not impact research. For many of them the impact is just obvious to them on a daily basis as they see their clients’ assets growing and lives improving. They’d rather invest their resources in opening new branches, raising more and cheaper capital and improving their internal efficiencies than running impact analyses.
- Long-term impact studies are expensive with little return-on-investment value for the MFIs. Increasingly, the large MFIs have access to non-subsidized capital, so they aren’t required by capital sources to invest in these kind of activities, so most don’t.
Here is another post I wrote on a critique of microfinance impact.
I think that the most likely sources of impact analysis are:
- Independent specialized NGOs (or government anti-poverty agencies or university-related research initiatives) who care about this and are funded to do this kind of analysis and reporting.
- Emerging credit ratings services which are greatly needed to improve the efficiency of credit granting … primarily to reward those who have proven themselves as credit worthy. There will be enough value that these can be run on a commercial basis.
Please post comments on what you think.