September 16, 2009
Chapter 7! Microfinance through “Development as Freedom” Lens
By David Roodman Tags: development as freedom, drafts
It’s been almost four months since I posted a chapter draft (chapter 4). Now I’m posting chapter 7 (in Word format pdf). [Update: added quotes from CARE studies in Bangladesh.] So I have some explaining to do.
I actually have drafts of 5 and 6, but I need to do more on them. I want to add some discussion of VSLAs to chapter 5 and move some of the material on insurance from 4 to 5. As for 6, all the new impact evaluations I have blogged have made the draft obsolete. I hope to have 5 and 6 for you by the end of the month. If you can’t stand the wait, you can read Microfinance as Business, on which chapter 5 is based, and peruse my posts on evaluations, which reveal the conclusions of chapter 6.
Chapter 7 is one of the hardest things I’ve ever written. Maybe my struggle is obvious in the text, which is quite long. There are a lot of contradictory ideas—credit frees by giving people more control over their finances, credit entraps—and the evidence is fragmentary. The major last section goes through studies one by one, rather than themes one by one, which is much more my wont. I gave up on a comprehensive conceptual organization.
Regular readers of this blog (if there are any) will recognize past posts in the draft.
Please tell me what you think.
By way of introduction, here is the Conclusion:
A simple question—does microfinance expand or contract freedom?—led us onto a vast and variegated terrain. The root of much of this complexity, noted at the outset, is debt’s double aspect as a source of both possibility and obligation. The theory and evidence we have probed lead to several conclusions, some more certain than others:
- By decoupling when something is bought from when it is paid for, financial services inherently give people more control over their financial lives—more “agency” or “freedom” in Amartya Sen’s terms.
- Savings and insurance services do so without imposing future obligations the way credit does, so they seem more benign in the development-as-freedom perspective if they are provided free of fraud, price-gouging, and recalcitrant disbursement.
- Thus loans threaten the freedom of the poor most, a truth embedded in the ancient proscriptions on usury. Yet the traditional referent for the definition of usury, the interest rate, is not the only characteristic of credit that determines its effects on borrowers’ agency. Transparency, reliability, flexibility, group dynamics, and systematic forbearance from overlending appear to matter at least as much in practice.
- Reliable evidence on how microcredit affects people’s freedom is fragmentary and emanates mostly from Bangladesh. It tends to support a few generalizations: First, doing financial business with poor women empowers them mainly through any economic success they achieve rather than in parallel to it. Women gain more autonomy from successful investment or spending management than they do from entering into solidarity with jointly liable borrowers. Yet programs such as Indian self-help groups that go well beyond pure financing, running activities dedicated to organizing women to fight oppression, can leave a stronger imprint. [Update spurred by commentary from Sara Duke:] The same may hold for the “credit plus” programs of BRAC and Freedom from Hunger, which train and teach as they lend (see chapter 4). Second, the more a microcreditor pursues financial self-sustainability the more it imposes on the freedom of its clients. The financially loose SHGs and the subsidized SEDP program that Kabeer studied seem to score best on empowerment. Finally, collateralizing one’s reputation through group credit may be more oppressive than a more conventionally collateralized individual loan—for those who can afford the latter.
We arrive at a surprising conclusion: the most famous form of microcredit, the solidarity group loan, appears least intrinsically empowering. Now, that is a relative statement. If all who enter into group credit borrow no more than they can handle, then by helping them manage mismatches between earnings and spending needs, credit still empowers them all. Yet as we have seen, some poor people do get in trouble with microcredit. The needs of the poor are indeed endless, or they would not still be poor. And the evidence does not suggest that empowerment “side benefits,” those not transmitted through finance itself, compensate. They do not salve the wounds of the debt trap.
This reality confronts the charitably minded investor with a conundrum: should she support an activity that might help 90 percent of the people it touches while making 10 percent worse off—perhaps much worse off? The Hippocratic dictum to “first, do no harm” comes to mind at this juncture. Taken literally, it is impractical in fighting poverty: every effort to better a society trods on someone’s toes. But the old doctor’s oath is food for thought. Done right, savings and insurance approach the ideal of minimal harm more surely than credit. Since, as chapter 2 explained, savings especially can substitute for credit for many purposes, the pursuit of development as freedom seems best served by supporting savings more than credit. People rarely get caught in savings traps.
While I would personally hesitate to support microcredit—group credit especially—I would never say never to lending. Absolutism is rarely credible in matters of social policy. I am convinced that millions of poor people live better because of microcredit. And it is much easier to set up an institution to disburse funds on credit than to collect them as deposits. Granting microcreditors a place in the portfolios of the poor, we should ask that they maximize their flexibility and transparency with respect to clients and take all reasonable steps to prevent overlending. And we should do everything we can to give the poor stronger alternatives to borrowing.
The need to deemphasize microcredit leads and the institutional challenges to doing so—institutions that would take savings and sell insurance properly face high legal hurdles—leads us to a quite different perspective on the contribution of microfinance to development. The next chapter looks at microfinance operations in terms of how they enrich the institutional fabric of societies by growing, competing, and innovating to serve the customer. That perspective tends to valorize businesslike operation, financial independence, and freedom from subsidy.
Yet our scrutiny of microfinance through the lens of freedom hints at an important tension between the two perspectives. It appears that what is arguably easiest from an institutional point of view—making loans rather than taking savings or insurance premiums, passing the full costs of credit on to customers, assertively enforcing repayment requirements—is hardest on poor clients. There is a margin at which convenience for the institution and the needs of the client conflict. That tension may be appropriate—it is inherent in the dynamics of any healthy market system—but it should be recognized. The moral onus remains on the microfinance industry to do not what is easiest but what maximizes poor people’s freedom.
September 18, 2009 at 8:39 am
Hi David
Seems we are both finalising our books on the same topic. I am just proof reading the manuscript now for delivery in two weeks, so its pretty hectic.
I have just one general comment on what I agree is a hugely important issue of freedom and microfinance. I really do think microfinance analysts (not yourself) make a serious mistake by automatically equating access to microfinance with freedom, so that women are assumed to be empowered to the extent that they have better access to microfinance and so can compete on the market in order to survive. This is all nonsense to my mind. The global rationale for this movement is not at all to empower women, it is very clearly to disempower women (and men) by making them – more fully than virtually ever before – subject to the whims of brute market forces. This was precisely what Mrs Thatcher had in mind with self-employment programs in the UK in the 1980s and also Reagan with ‘workfare’ in the 1980s. So far as I can see, nothing has changed in the international development agencies that now slavishly follow their ideology. Microfinance programs do not empower women, but disempower them in the face of brute market forces.
It is not women being empowered, but the market that is being empowered here (at least to the extent that women accept that they simply must accept whatever benefits it bestows upon them and whatever little space they can find within it as the only way forward). Trying to establish Scandinavian-style space outside of the market, through state intervention that creates decent social conditions and collective Sen-like entitlements, is now effectively prohibited, and partly it is thanks to microfinance. This is a truly major step back in the forward march of gender empowerment (and human development in general). The many women I have interviewed in many places (but particularly in the Balkans, especially in Bosnia) feel tremendously disempowered by being subject to market forces as never before in their lives – it means they cannot do or create anything that is not sanctioned by market feasibility and sustainability. Some ask why they could carve out public spaces of social development and entitlement under the old system in Bosnia, when the country was poor and institutionally under-developed, and yet in the New Market Bosnia life is reduced to a choice of trying to survive on microfinance, or simply die (or migrate). The occasional success story you come across (the role models we see on websites) is no compensation at all for the vast majority of lives that are blighted and disempowered in this manner.
Good luck and lets swap books when we are both finished!
Milford
September 22, 2009 at 3:57 pm
Hi, David. If I understand the Chapter 7 conclusion posted on your site properly, freedom and obligation are being treated as opposites.
Applying this to credit no doubt has some validity, but it’s problematic too. How would we categorize the behavior described in Portfolios of the Poor (or The Poor and Their Money, and elsewhere): a substantial portion of poor borrowers choosing loans as a way to save (i.e., to accumulate usefully large amounts) precisely because they want the obligation and think that this discipline empowers them to save more? In the judgment of these people,”normal” savings vehicles aren’t more benign from a development-as-freedom perspective, at least in their own circumstances.
What percentage of borrowers are using loans this way (i.e., using obligation to achieve a higher-level freedom)? I don’t recall a quantitative answer in those references, but they certainly left me with the impression that such behavior is widespread.
Rich
September 22, 2009 at 4:33 pm
Hi, Rich. Somewhere in the text (or is it in chapter 2?) I do write about the interesting phenomenon of people like me freely choosing to bind themselves to making future loan payments: using freedom to restrict one’s own freedom. I agree it’s a good thing and maybe needs more emphasis in this chapter. The way the chapter is organized is that it first goes through a lot of abstract issues such as this. For example, it talks about whether interest rates are too high, leaning heavily on your work. It also talks about flexibility, reliability, and more. Then it switches to the evidence about outcomes, most of it qualitative, which does not distinguish so neatly among these various concepts and just tries to look at how people are doing. Some of this evidence is negative, and doesn’t leave you with the impression of people happily bound to future loan payments. On the other hand, some of the evidence is positive. I *think* that the conclusion is shaped more by this review of the evidence than the review of the concepts.
September 22, 2009 at 9:45 pm
Hi David,
I enjoyed reading your chapter.
I wanted to note that in Development as Freedom, A.K. Sen exposes an approach, not a theory. It’s the capability approach. I think your chapter would benefit from an explanation of the basic concepts of the approach (e.g. capabilities and functionings) (may be you do it somewhere else in the book) before getting into A.K. Sen’s conceptualization of development as an expansion of freedoms.
Also, as someone who does not do research on microfinance, but has worked on the capability approach, I am surprised that there does not appear to have been research evaluating the impact of microfinance on poverty where poverty is defined and measured through the capability approach’s lens (i.e. multidimensionally, and at both the capability and functioning levels).
Sophie
September 24, 2009 at 4:35 am
Our experience is of sourcing microfinance in Russia for the Tomsk initiative where a solidarity group model was deployed by Finca. Here it was possible to demonstrate success in lending to a mixed gender population with around 80% female.
Since then in Ukraine we’ve found that otherwise microfinance is only available to established business and that in some cases assists the process of money laundering.
My colleague had gone into Russia in the wake of their 1998 economic collapse and the “Chicago School” approach that preceded it to recommend an inversion. I don’t think he would have been close enough to Finca operations to determine whether a given percentage was harmed, but 10,000 enterprises were created in a city of 600,000 with 95% surviving more than a year.
For some reason US Gov has seen fit to obliterate the English text of the project but the Russian remains.
Links:
http://web.archive.org/web/20011020084816/http://www.ri-tomsk.org/
http://www.p-ced.com/projects/russia/
Discussion on the success of Tomsk can be found later in this interview:
http://www.iccrimea.org/scholarly/economicdev.html
Regards,
Jeff Mowatt
September 25, 2009 at 6:00 am
Dear David
I think you have touched on a very crucial and interesting point, and very worthwhile to reflect. But I have doubts if the nature of credit and the nature of freedom can be intertwined the way you suggest.
What is the nature of freedom? I agree that Amartya Sen provides a robust definition, supported “operationally” by the capability-framework. But, as Sen discusses, there are different views about the nature of freedom—let us agree that the capability-perspective is our choice.
Under this perspective, expanding choices that were not available before results in expanded freedom. The question, thus, would be if provision of formal microfinance (which empirically refers overwhelmingly to group-based micro-credit) is an expansion of choice.
Some argue that it is not. E. g. Oosterhout takes a view (my wording might be inaccurate) that much of microfinance is just “pulling into the limelight” what has existed for long time—indeed, we know that informal microfinance used “merry-go-round” (”tontine”) and other such mechanisms for credit, savings and insurance all along. However, personally I do feel that microfinance—particularly so called “commercial”, large MFIs—have provided an addition to choice in terms of credit amounts available and in terms of transparency and loan-assessment process which was not there before. I have rarely heard of people refusing MFI-services; I hear a lot of people adding MFI-services to their portfolio of financial services they use. I would say that in India, most people add these MFI-services to their informal financial service portfolios. In Africa (Uganda, to be more precise about my experience of reference) there seems to be a comparably higher number of people who combine MFI- and bank-services (in Uganda, now three of the major MFIs are banks themselves). So, all this indicates expanded choice, i. e. expanded freedom. (I also seem to recall that Sen himself in some of his latest writing refers explicitly to microfinance).
Now, the question is what people do with these choices. It has ever caused heated discussion on this list. But I guess we all agree that choice without choice is no choice. That means that some people will make better choices than others, and some enjoy better fruits from their choices than others. Sen asks what are the conditions that a “nominal” choice is indeed an “effective” choice. He argues beautifully that quality of health and education are some of those conditions. Recent research by behavioural economics adds to this view. E.g. Thaler/Sunstein show that people tend to make wrong assumptions and thus wrong choices about their credit volumes (and prices thereof). They formulate a couple of rules under which credit—any credit, micro- or not—should be provided. I guess it is a question of taste if these rules should be attached to the credit-providers and their regulators, or to the education system-cum-consumer protection signaling system; some may feel that a direct set of allowed/forbidden-activities carved into law would do the trick. The weakness of that latter argument is that it has little by way of empirical success going for it, particularly in low-income-countries.
I think that Sen does not go into the question of choices that destroy freedom. Here, over-indebtedness is the issue that springs to mind.
But we could also think of some forms of “over-saving”, which we find among animal husbandry communities, which may starve their children (usually girls) rather than “cash in” some of their “savings” (animals). I suggest to also consider dysfunctional insurance schemes here—of which there are a few, particularly when it comes to the poor client (who may be living in low-income-countries or in the USA).
A dysfunctional insurance scheme might be the most insidious of freedom destroyers, because it gives people a false feeling of security. It would be an issue to discuss all on its own—for my part, I cannot really disagree with any poor person being suspicious or reluctant to take on insurance from some grand company; to many have been mislead or even cheated. Obviously, all arguments about ensuring insurance service quality would apply to the frameworks for other financial or education (or health, for that matter) services as well.
So how do we handle the choice that destroys choice, the freedom to abandon freedom? If we look at constitutional theory, it mostly suggests a number of safeguards—limitations of choice in the name of choice. Logically, all these safeguards are somewhat flawed; practically, they have been found to be essential. The German socialist and feminist Rosa Luxemburg said “Freedom is always the freedom of the next person.” I guess, Sen could appreciate that as a supplement (or rather explicitation of an implicite assumption) of his theory. If we look at the freedom of the MFI and of the client (”the next person”), do the former care enough about the latter? Apart from lip service (comes in a package with social investors’ funding), I do not see much in terms of engraining it into operational and management systems. That I hold to be true for both large, commercial and small, grant-based MFIs, but I am willing to agree that the large ones should be hold to a stricter scrutiny (for one reason, see the outlined argument about insurance frameworks above; another is that most of them are biased towards credit [usually for regulatory reasons] and thus more exposed to wrong incentives of quick credit).
However, it would be wrong—in the sense of freedom—to remove all consequence of choice from the client. Ultimately, if a client takes credit she cannot digest, she is responsible and not the MFI. However, along the line of safeguards mentioned above, there should always be an option to “go back to start”, to another choice. Bankrupcy laws are one such mechanisms. Given the fact that the average poor customer is already over-indebted by any “middle class standard” (that’s one reason why she is poor) we can make a strong argument that a-priory-safeguards should be stronger for MFI-clients (and thus according responsibility of MFIs) than for traditional banks.
Summing up, I believe it can be shown that quality microfinance clearly expands capabilities and thus freedom. The emergence of quality microfinance is a little miracle that we may allow ourselves to admire. But quality—like freedom—does neither emerge incidentally nor automatically; it must be the result of decisions for some values and against others; and those taking those decisions (and those avoiding them) are to be hold fully responsible.
Best
Oliver
September 25, 2009 at 6:03 am
Oliver,
Thank you so much for these eloquent, well-informed thoughts. Overall, I find little to disagree with. I agree that credit does not automatically bestow freedom even though offering it creates a new choice; that how credit products are designed and framed matters; that people who use microcredit integrate it with informal services; that savings and insurance do not automatically bestow freedom either; that bankruptcy processes are important.
That said, I think there is a fundamental difference between credit on the one hand and savings and insurance on the other. It is very hard (though not impossible) for savings and insurance to restrict freedom when delivered in an efficient, above-board way. Yes, people can over-save and over-insure, but how many people do you know who have gotten into trouble that way? Credit, on the other hand, can do harm even when delivered in an efficient, above-board manner. It is inherently different because it binds people going forward.
And I don’t follow you when you write, “Summing up, I believe it can be shown that quality microfinance clearly expands capabilities and thus freedom.” Most of your comment is conceptual and rightly emphasizes the nuances of the matter. How do you go from conceptual pros and cons to asserting that a study if done would show that the positives outweigh the negatives? I’m sure you can understand why it would be hard for me to write that microcredit done right is freeing because Oliver believes a study, if done, would show this! In the last part of my chapter, I go over the empirical evidence I have found, most of it qualitative. The conclusion is my attempt to synthesize that evidence. If you think I have missed or misinterpreted a study or am making the wrong generalization from that evidence, please let me know.
–David
October 1, 2009 at 12:38 pm
Dear David
I have perused more through your chapter 7; you have reviewed an impressive body of studies, a good part of which I was not familiar with. I share your observation that the body of findings is somewhat less impressive.
I am reminded of ‘lights and shades’, the title of a (not too academically robust in terms of methodology, I suspect, but otherwise fairly solidly done) study by M-CRIL/APMAS – I think that title is sort of an ingenious sum-up of about everything we know about the nexus of microfinance and development. As far as I am aware, Ms. Mithra (one of the blog’s comments) is right that there is very little that empirically scrutinizes microfinance against the capability-approach. Your chapter here is a front runner in bringing up the topic.
In India, GTZ/NABARD have done a series of studies (the last one [I do not know for the earlier ones] was done by NCAER) assessing the SHG-bank linkage programme over 5 years, with particular focus on the MDGs, and are very pleased with the findings. It might be said that they find more lights than expected, and it is the most representative sample ever studied. It is only a before-after-study, though; but it has some case studies of unsuccessful SHGs which you might find worthwhile to look at. From SIDBI, there is a longitudinal panel-study (the panel is rather small, though) which pays more attention to the drop-outs. Overall, my impression is that SIDBI did not find very significant differences between drop-outs and stay-ins.
I would like to make another attempt to bring out my point of unease around this chapter: Let us think of freedom as a driving license. Assuming that a vehicle is indeed available, does the license effectively expand capability? Does it involve a process of learning, or empowering, such that the license embodies that expanded capability? Or does it merely mean that a person has bribed the right officer (you would not like to know how my Ugandan friend got her license…)? In either case, some people will have a good time with their vehicle, and others will run into accidents with all the misery that involves. My argument is that the fact that some people will not or can not put their driving license (cum-vehicle) to their being better off does not allow concluding that the license did not create freedom. We might only conclude that some systems of licensing (e. g. limiting the vehicle power availed to younger drivers) are strongly correlated with fewer accidents than others.
Can we apply this to microfinance, and your chapter? You discuss the “quality of the license” in the first part of the chapter (with too lengthy an account given to the issue of ursury, if I may state that personal taste). You discuss several traits of effects of “using the license” in the second part of the chapter, but you find it hard to pin down a strong correlation between “the license” and “the effects of use”. You make a convincing case for the lenders’ responsibility in over-indebtedness, though.
From this, I think we can make the following statement:
We are confident (i) that microfinance at a certain quality expands freedom in the definition of Sen; (ii) that that quality of microfinance is not widespread enough; (iii) that some minimum criteria of that quality can be agreed upon, but others are quite controversial. Examples of the controversy are
- Milford – as I understand him – thinks that the whole exercise is rather the opposite of expanding freedom, i. e. “making [the MF clients] subject to the whims of brute market forces”;
- many nowadays think that some sort of “social performance” would contribute relevantly to defining or measuring [it is not quite clear which] that quality;
- I think that both views are flawed [as far as South-Asia and Sub-Sahara-Africa are concerned – I am not familiar with Eastern Europe and Central Asia which I believe are Milford's major regions of research] and that the Compartamoses’ of this world are on the right track as long as they apply sound loan appraisal techniques [which they often don't] and target a long-term relationship with their clients [the issue of drop-out rates is a largely overlooked and I believe underestimated one – gratefully you raise that in this chapter].
Regards
Oliver
October 6, 2009 at 11:37 am
Of your many discussions and thoughts about microfinance/microlending it appears that few of you have actually been in a third world country to witness it for yourself. I would agree that about 90% are successful and 10% not (or worse). But, the win of 90% can actually help the 10% in time. For those book writers out there…. it is far easier to read someone else’s books/statistics than actually getting on the ground and getting your own data. If you do, you will see the freedom on their faces, in their voices, and in their small little businesses. Folks that if they make $100 more per year means that they are VERY successful.
Cheers,
Ian
October 8, 2009 at 10:50 am
Dear David
You got some excellent postings on this. I just want to briefly respond to Oliver since I think he misses out something vital to do with the Sen issue of entitlement. As Oliver states, I do largely subscribe to the belief that microfinance is not about empowerment, which takes many forms, but about disempowerment. I don’t think there is any doubt about this if you just take the time to read what many microfinance supporters say they want and also what is happening on the ground. The historical progress made in providing collective spaces of progress and empowerment are being over-turned today to enable us to go back to the 19th century ideal of individualism and ’sink or swim’ on the market. This is the self-professed global aim of neoliberalism. Microfinance plays an important part here. Meanwhile, the poor generally don’t want individual capabilities, shown by the fact that they always argue in favour of collective responses and entitlements rather than commercialised microfinance. They know which is the more powerful.
The Sen entitlement issue is a good example of how this works. I agree that microfinance offers up some additional ‘capability’, which is what Oliver is referring to. However, this is an extension of ‘individual capability’ and it comes at the price of much reduced capability elsewhere, on the ‘collective capability’ side. There is a ton of evidence to show that many governments in developing countries are using microfinance to marginally increase and hype up the individual capability of the poor as the cover behind which to facilitate the withdrawal of important state services and pro poor entitlements that were built up under pre-neoliberal regimes wherein deliberately strengthening the ‘collective capability’ of the poor was seen as important. So, today’s trend is to extend individual capability with the extension of microfinance, which is typically very weak, while withdrawing collective capability, which is historically very strong indeed – and so that’s where I find the problem. We know full well that the poor can combine and through collective organisations (trade unions and social movements) and through democratically elected governments, petition for meaningful pro-poor changes. Historically, this strategy has always been FAR better for the poor, to the extent that it has changed the distribution of income and wealth in their favour in developed economies (not always too much, but still, in their favour). As Paul Krugman said recently, the collective power of the poor in the 1930s was the reason the US evolved a sizeable middle class! Same in the UK in the aftermath of major programs in the post-1945 period. But from the 1970s onwards, this empowerment of the poor had to be stopped adn put into reverse in developed economies and developing countries too. Microfinance linked in well with microenterprises and the informal sector, and the disempowerment process took off.
So I think Oliver is quite wrong to suggest that capability increases with microfinance, since it is the other side of the coin to the movement to reduce the collective capability of the poor exercised through collective action and social mobilization (especially through democracy and a por poor government – as in Brazil for example). Microfinance should be seen as part of the progressive disempowerment of the poor, just as much as the dismantling of the trade union movement and social welfare projects (collective capabilities). Being individually subject to market forces is, then, a huge form of disempowerment compared to what was achieved and is achievable through forms of collective capability, and to maintain otherwise, and to implore the poor to stand up and try to survive armed with their microloan in the face of the bitter winds of market forces, is an abdication of responsibility to the poor: it is not helping them. This holds in Eastern Europe, where I mainly work and research, as Oliver suggests, but even more so in other parts of the world, where I also research and occasionally work. I wish it were otherwise, but it is not.
Milford
October 18, 2009 at 4:14 pm
Reading Chapter 7, I was struck by the number of questions/issues raised in the chapter that defy clean and absolute answers, or as you put it, the questions are “not binary but nuanced.” Credit for the poor can be both empowering and a rope around the neck. Greater competition amongst MFIs can reduce interest rates and other monopolistic behavior but too many MFIs can lead to excessive borrowing by the poor who fall into a debt trap. And flexibility in loan repayment is good because it prevents defaulting poor from being pushed over the edge but it is bad if everyone is then encouraged to default. I guess that is the world of a social scientist; it is not easy to find hard and fast rules and I must congratulate you on your open-minded approach and in resisting the temptation to come up with binary answers where none exist. The prevalence of these non-binary questions also highlights the importance of the human element—as opposed to hard and fast institutional rules and regulations—in bringing out better outcomes for the poor. A successful MFI will require the continuous infusion of vision from its leadership (e.g. your assessment of Grameen II versus its predecessor) and a human commitment to the welfare of the poor that leads to changes in the design of products and procedures offered by the MFI. And it requires an ever watchful eye from independent analysts who can verify claims of impacts and highlight potential dangers of certain practices, as you do with the case of group liability.
For whatever it is worth, based on my own casual empiricism with the poor in a developing country, I found myself agreeing with all your conclusions at the end of the chapter. The only thing that struck me as a bit ironic was, at the start of the chapter, I (either through my faulty reading of your introduction or a lack of understanding of Sen’s approach or both!) came to expect that somehow Sen’s framework offered an alternative yardstick to measuring the merits of microfinance—an alternative to statistical impact assessment. What seemed ironic was that we ended up needing evidence from the field again to judge whether microcredit was indeed freedom enhancing or restricting! The only conclusion that could possibly be arrived at conceptually was that savings (if properly regulated) are freedom enhancing but whether or not credit is, well, we have to rely on empirical evidence to answer the question—so back to square one!
December 12, 2009 at 7:44 am
While Sen’s capability concept is discussed in MF arena in the above postings, I consider it is essential to discuss on the need for ethical imperatives to be inbuilt in MF mechanism for getting the desired impact in the process of poverty alleviation. In his book “On Ethics and Economics” Sen quotes “Another surprising feature is the contrast between the self consciously ‘non-ethical character of modern economics and the historical evolution of modern economics largely off shoot of ethics.’
Most of the MFIs follow unethical practices for enjoying more freedom self consciously for them (at whose cost?) Without basic ethical elements, the micro finance game cannot facilitate freedom, capability and development to the poor. There is therefore a need for more deliberation on the ways and means of inculcation of ethical imperatives ‘at least’ in MF platform
January 1, 2010 at 2:05 am
Dear David,
Thank you for this initiative…. The microfinance sector is becomming highly contoversial. While the potential impact seems to be high, the realization of it is a far cry from this potential. Many factors come into view: the socio-economic infrastracture, policies, institutional capacities, etc, etc. Rutherford and others are digging deep into poor peoples’ life and showing us how the microfinance services design need to be formulated…. These kinds of deep analysis is comming quite neer to reality of the poor. Your focus on ‘development as freedom’ will add on this good effort if you continue to consider what is on the ground in poor areas, and take views of practitioners working with the poor. As of now microfinance is solving many problems of the poor, but in many areas it is also creating much problem, denying the poor much of the freedom! This is so where the microfinance service is poorly designed, and delivered in isolation… I will write more…. some of my publications are already on microfinancegatway.org
Getaneh Gobezie