First of all, sorry for the terrible blog post title, I just love that song.
Some folks over at the Center for Global Development blogged recently that results from two microfinance impact evaluations, one conducted by the Centre for Micro Finance and the Poverty Action Lab and the other by Innovations for Poverty Action, have freaked out donors, investors and microfinance institutions. Apparently the news that micro-credit did not drastically reduce poverty among clients nor impact social indicators such as health/education/empowerment let some air out of the ballooning expectations placed on microfinance [i.e. Nobel Peace Prize, billions invested, apotheosis of Mohammad Yunus].
The CGD authors observe [ incisively in my opinion ] that it's premature to panic because, among other well-argued reasons, a) Not all microfinance products are created equal nor are all contexts where microfinance is delivered ergo we cannot expect the same results from the myriad of products/services offered by MFIs everywhere b) the effects of micro-credit may take time to manifest and the period over which impact was measured in these initial studies was quite fairly short (less than two years after Spandana entered slums of Hyderabad for example).*
I would add a few more items to their list. First thing is that development interventions have always been imperfect, iterative and most have undergone major face-lifts. Microfinance was once squarely in the sphere of development interventions, right alongside education, health, post-conflict and human rights etc. For these latter programs, NGOs, donors and scholars have collectively spent millions of hours tinkering with what works, deriving best practices and working to maximize impact. Even if a particular education program failed to flourish, it did not force the development sector to swerve from their firm belief that, "education is good," or "access to education is good." I think we shouldn't approach financial services for the poor too differently. Unfortunately, I think stakeholders on all sides have used jargon that feeds into a do-or-die paradigm. "Either microfinance is working or it's not!"... "the miracle of microfinance" "the myth of microfinance" I bet we'll never see a headline proclaiming, "the myth of education."
So I'd advise that we all refrain from pushing the panic button.....
As an addendum, many of the findings from the Spandana study bode well for microfinance - check out Professor Duflo's presentation at IFMR in July.
*In fact, the Centre for Micro Finance has recently signed an MOU with Spandana to conduct a second endline to gauge the impacts of micro-credit after several loan cycles, instead of just one.
4 comments:
Health, education and empowerment are long term development goals. They involve behavioral change that are influenced by many more factors than just availability of credit.
Availability and access to schooling, conditions of sanitation and hygiene in the neighborhood etc. affect a child's health and attendance in school. Availability and access to food and nutritional knowledge, low cost health care etc. play an important role in health outcomes of members of the household. Empowerment of women is influenced by factors at the individual, household, community and national level.
Access to credit over a short term (1-2 years)cannot influence all these spheres significantly enough that evaluation programs can measure them and deem the service a success.
Agreed on the above. I think people also assume that these borrowers previously had absolutely no access to finance prior to taking the microfinance loans. In reality, most households were already borrowing from friends, relatives or moneylenders. And the latter can usually provide significantly higher loan amounts with greater repayment flexibility. Thus, it's entirely understandable that the introduction of microfinance credit ALONE had no significant impact in such a short period of time. Much more research is needed to evaluate whether microfinance can smooth consumption and reduce the severity of income shocks in the long-term. And, it must, I believe, be combined with other interventions, whether health, education, livelihoods training, etc.
Microfinance is not equal to high-quality access to financial services, but is a good place to start for many low-income households. I wish evaluations and evaluators could reflect this humility of approach.
More technically, the Spandana paper reported (on most variables) standard errors of between 25% and 150% of the control mean. So the fact that Banerjee, et. al. found nothing on a bunch of variables is not surprising: you would have needed huge effects to make a significant finding.
It would have been interesting to see whether families made different decisions than in the past, which could lead to better health and education outcomes; unsure whether either evaluation had the data.
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