Chapter 4!

May 20, 2009

I am happy to get this monkey off my back! I have just uploaded a draft of chapter 4 in Word (doc) format and pdf. Update: New version, incorporating sbg’s comments: Word (doc) format and pdf.

This chapter is my attempt to survey the landscape of modern microfinance. It operates in two modes. Most of it, like chapter 3, tells history and individual stores, as a way of introducing the various types of microfinance. Solidarity group lending, for example, is introduced by telling Muhammad Yunus’s story, as well as that of Jeffrey Ashe of Accion. You’ll see the fruits of my learning about microinsurance, too. (HT to all commenters on that post.)

At the end, the chapter shifts to a statistical survey of microfinance today. These numbers are not done yet. An intern starting this week, Eben Lazarus, is helping me, and we should post an update soon.

Please tell me what you think. What did I get wrong? Who did I leave out? When is it tedious? Is it too long?

Remember that the Summary and Outline contains a hotlinked table of contents, so you can find all posted drafts. On the blog website, you can find this post through the “About the Book/Outline” link at right. Or just click on the links for individual chapters at right.

Chapter 5 should come faster. It is based on my paper with Uzma Qureshi, Microfinance as Business.

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1. sbg Says:
   May 31st, 2009 at 12:37 pm

   I’ve been following the blog and this interesting project, but haven’t read a full chapter yet (or commented). After reading chapter 4, here are a few notes on the text:

   - p. 2, “At the end of 2007, 25,000 credit unions operated in developing countries”: While the WOCCU data is probably the most comprehensive single source, there are some significant sectors not captured in their data set. The number of credit unions of one form or another is therefore likely even larger (e.g around 40,000 coops in Indonesia (ADB 2003; I can’t find the exact reference), 30,000 RCCs in China (http://www.microfinancegateway.org/p/site/m//template.rc/1.26.9145); see also DiD and ICA for other estimates perhaps, and others by region.)
   - p. 20: Given the number of mentions in this chapter, it may be worth noting that BDB was closed by the government of Indonesia in 2004: http://www.balidiscovery.com/messages/message.asp?Id=1860. Maybe this will show up in the natural selection chapter?
   - p. 40: Based on the above, change reference to BDB to past tense.
   - p. 40, “For the first time, an MFI placed equity in a stock market.”: BRI and Equity Bank had IPOs prior to Compartamos. (BRI’s offering was for both the commercial and microfinance units.) See: http://www.equitybank.co.ke/investors.php; http://www.ir-bri.com.
   - p. 41, “Since some people take more than one loan at a time, the number of borrowers is lower and unknown.”: It is not so much that the borrowers are unknown (it is easy for an MFI to count the number of people with loans), the problem is in aggregating those borrowers across MFIs. It would be more accurate to say the ‘aggregate borrowers’ involves some (possibly significant) double-counting.
   - p. 44: You might check the citation on savings vs. lending figures. These could be for voluntary savings if based on the CGAP figures (although compulsory savings are no doubt also significant).
   - In general, the narrative is a bit too personality-focused for my taste. There are significant institutional or systemic factors that contributed to or hindered the development of microfinance during this period, and they are hidden a bit by hopping between the various personalities. (Take the example of BDB above.)
   - The section on microinsurance is interesting, but probably deserves a separate chapter (maybe along with consideration of other non-credit instruments). It sticks out a bit in the current chapter.

   Thanks for being so open about the process and result for this.

2. David Roodman Says:
   June 1st, 2009 at 7:07 am

   Thanks very much to sbg for the most detailed comments yet on the text. I am grateful for the time and thought that went into this work. I have posted a new version incorporating the specific comments and updated the post to point to it. I am pondering the larger comment about the narrative being “too personality-focused for my taste.” Possibly chapter 5 will address this concern by providing some balance. It talks about what MFIs do in a much less personal way. My thinking in writing chapter 4 was that people usually need stories to feel oriented, to feel like they understand where something comes from. I’d be interested in others’ thoughts on whether I’ve overdone it.

   One clarification on counting credit unions. Prompted by sbg’s comment on this point, I wrote to Brian Branch, who is Chief Operating Officer of the World Council of Credit Unions, and who I quote in the text. He explained that WOCCU’s statistics define credit unions as being democratic, so they don’t count the thousands of government run cooperatives in China, e.g. I hadn’t understood this distinction before, and have amended the text to reflect it.

3. Didier Thys Says:
   February 2nd, 2010 at 3:54 pm

   David,

   This is a great effort. Not sure if it helps at this point, but a few things you might want to look into.

   1. Accion: Before PRODEM was the AGS in Columbia which was an associatoin of microfinance organizations that reeived technical assistance from Accion and later formed a financial cooperative to support their activities. It was their first program to grow to significant scale but also served as an R&D center for the solidarity group methodology. Women’s World Banking affiliates were particularly involved there and hadsome of the most significatn initial growth until the first ACTUARs were created which eventually evolved in Corposol. PRODEM applied a lit of the lessons learned from there among which was to move away from partneships with established local organizations into the creation of affiliates over which ACCION had total control. It was a conscious move away from the installation of methods and systems into local organization to the development of actual institutions.

   2. Indonesia. One of the early influencers of the microfinance movement was not so much BDB (Which was often referred to as \Doggone Bali Bank\) as BKK in Java. Before most folks heard about BRI or BDB, they heard about BKK as a large scale solidarity lending system which operated out the Regional Development Bank on Java. In fact each of the Regional Development Banks had innovative village level lending programs that they kept up until the financial reforms of the 1990s. Learning Programs such as PISCES and ARIES (financed by AID) brough many of these to light as GEMINI brough BRI to the forefront of many aid/development thinkers and practicioners.

   3. One of the pioneers in fostering the linkage program in Asia was the Australian Foundation for Development Cooperation who partnered with Asian Development Bank among others for piloting linkage programs with SHGs. They have extensive literature on the subject which Seibel came to further document and prostletize.

   Great Book.

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