NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Housekeeping note

Today I’m introducing a few changes in the format of this Friday Roundup. In addition to a short post about and links to noteworthy news in the social enterprise space, I’ll include three sections that may help you stay up to date with what’s being said on NextBillion (the last few weeks have averaged 2-3 posts per day… that’s a lot to keep up with).

The first new section, In Case You Missed It, is a list of what was published on NextBillion on the corresponding week. The second one, Make Sure You Don’t Miss It, will include relevant events and opportunities you should be aware of (if you know of anything that should be on this list, please do email me. I’ll appreciate it.) The third one, NextBillion Archives, will include older NextBillion posts on topics relevant to the week’s whenever possible. There’s so much good content hidden inthe archives of this site, we thought it would be great to undust some of it. Hat tip to Bryan for bringing up the idea just recently.

I hope this is helpful, and would love to hear your reactions and suggestions.

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Repayment rates and suicides: The perils of oversimplification

Microfinance is under fire these days. The Wall Street Journal, Financial Times and many local outlets have reported on policy measures that have followed alleged abuses committed by microfinance institutions in the state of Andra Pradesh. Reportedly, over-indebted customers, under pressure by MFIs using coertive practices, have commited suicide in the villages of AP. In response, the state government has run down measures that allow banks to lend to MFIs, which is likely to produce a major liquidity crisis in an industry that has relied on this funding to fuel its rapid growth recently. The news come just weeks after the successful public offering of SKS, the largest MFI in AP.

Now let me ring a “soundbite alert”. Headlines with “suicide” “microfinance” and “customers” in the same line can go a long way in oversimplifying the effects of microfinance and MFIs on the lives of the poor. They can steer debates in the wrong direction and lead many to conclude that microfinance not only doesn’t work but actually destroys the lives of the poor. Conversely, other soundbites like “99% repayment rates”, coupled with two or three feel-good stories can also oversimplify the effects and viability of microfinance, making it look like a panacea for the poor.

Whenever I need food for thought on anything microfinance, I turn to David Roodman at the Center for Global Development. His excellent blog on microfinance is full of useful resources to understand what’s really going on in Andra Pradesh. In addition to Roodman, CFI’s Elisabeth Rhyne chimed in this week with an excellent column in the Huffington Post about the crisis in india. I encourage you to read it if you want to better understand the policies that rule microfinance in India and how they compare to those in countries like Bolivia and Peru, where microfinance has also grown significantly. Rhyne’s column is rich in examples and its conclusion resonates with those of Intellecap paper on this crisis and Aavishkar’s Vineet Rai’s HBR blog post: state paternalism is not the best way to protect the interest of customers and it ultimately limits the choices available those it’s trying to protect. The danger of over-indebtedness and customer abuse is real, but as Rhyne shows, other approaches can be more effective in bringing better governance to MFIs.

Incidentally, a great conference on microfinance and its impacts took place just down the street in New York a few days ago. Tim Ogden, at Philanthropy Action, put together a fantastic roundup of the discussions that took place. I’m not even close to finishing all the readings, but a remark by Esther Duflo stuck with me as I came across it. I’ll share it to end this part of the roundup: “… micro-credit “is not like textbooks. It is an opportunity as opposed to an input, and as an opportunity it is embraced in different ways by different people.” Well said. Let’s all beware of soundbites and oversimplification.

In Case You Missed It

NextBillion this week:

• NextThought Monday: Social Enterprise on the Cover of the Economist, by Josh Cleveland
• Net Impact: Getting to Profit in Africa’s Base of the Pyramid, by Scott Anderson.
• Net Impact: Ways to Profit From Social Change, by Nilima Achwal
• Net Impact In Review: The Growing Imperative of Cross-Sector Collaboration, by Lisa Smith
• After ’07-’08 Crisis, A New Focus on Food Security, Sustainable Solutions (Part 1 of a series of interviews with Technoserve’s Simon Winter), by Kevin Keeper
• Accessing Finance: Old Challenges, New Solutions (Part 2 of a series of interviews with Technoserve’s Simon Winter), by Kevin Keeper
• Local Capacity Building and Business Development at the Base of the Pyramid (Part 3 of a series of interviews with Technoserve’s Simon Winter), by Kevin Keeper
• Motivating MNCs to Engage BoP as Consumers and Producers, by Scott Anderson
• Write Effectively: NextBillion Case Writing Competition Webinar, by Nilima Achwal
• Need Funding? Like Prizes? Innocentive May Be Your Answer, by Rob Katz
• Tough Stuff Fortifying the Base, by Adeena Schlussel

Make Sure You Don’t Miss It

There’s still time to register for Columbia and NYU’s Social Enterprise bootcamp. You can check out the details here.

NextBillion Archives

• An Interview with David Roodman (Part 1): Credit Bureaus and Microfinance, by Bryan Farris
• Microfinance: Good for Growth, or Overblown?, by Rob Katz (March, 2007)
• The Commercialization of Microfinance: The Good, The Bad and The Ugly, by Rob Katz (April 2008)
• Yes, Microfinance has Positive Effects on the Poor, by Manuel Bueno (June, 2009)
• Microfinance and the Rule of Law: From the Coffeehouse to the Credit Bureau, by David Lehr (May, 2008)