How The World Works: The Difference Between Calves and Cows

Friday, November 3, 2006

On the same day that Muhammad Yunus, founder of the Grameen Bank and chief apostle of the church of microcredit, received the Nobel Peace Prize, the Center for Global Development (CGD), a Washington nonprofit, published a study by David Roodman and Uzma Qureshi with the title “Microfinance as Business.”

Microfinance is generally taken to mean the provision of small loans — microcredit — and other financial services to very poor people, and Yunus is widely acclaimed as the man who pioneered its effective application. So CGD’s timing was excellent. But the thrust of the study was contrarian to the point of outright dissidence. Though the Nobel Prize committee, as CGD noted in its own interview with Roodman published three days later, “praised Yunus and Grameen for ’their efforts to create economic and social development from below,’” Roodman says that for him “the jury is still out” over whether microfinance contributes to economic development among the poor. In their paper, Roodman and Qureshi argued that there isn’t yet definitive evidence that microfinance actually lifts people out of poverty.

“Unfortunately, rigorously derived evidence that microcredit helps people in this way is surprisingly thin.”

Surprising is the right word, because microfinance has never been hotter. 2005 was dubbed “the Year of Microcredit” by the United Nations. Philanthropists, aid donors and profit-seeking capitalists of every stripe are all pouring hundreds of millions of dollars into microfinance schemes across the globe. (An absorbing article in last week’s New Yorker delves deeply into the differing motivations, and consequent friction between, the new players in microfinance, who include Microsoft’s Bill “philanthropist” Gates and eBay founder Pierre “profit-seeking” Omidyar.) Heartwarming success stories of people living in extreme poverty — mostly women — who have clawed their way out of the most abject circumstances with the help of minuscule loans abound.

And then there’s that Nobel Prize. The prestige of microfinance has never been higher.

But the title of Roodman and Qureshi’s paper, “Microfinance as Business,” offers a clue to the construction of their contrarianism. The contention is that microfinance programs that are successful work because they are good businesses, and not because they lift people out of poverty. For example, the authors argue that microfinance programs tend to focus on making loans to women not because of the demonstrated effectiveness in getting women out of poverty, but because it turns out that women are more likely to pay back their loans than men. This is supposed to be because women are more amenable to peer pressure — they don’t want to look like deadbeats in the eyes of their communities.

This observation, say the authors, intersects with the problem of proving that microfinance works as a poverty alleviator.

Continue reading “Microfinance as Business or Poverty Alleviation?

Source: Salon.com (link opens in a new window)