David Roodman's Microfinance Open Book Blog

 

Posts in: About the Book/Outline

 

Last Chapter Revised!

April 29th, 2011

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Yay. I have at last finished the rewriting pass on the book, having just posted chapter 9 (.docx and .pdf).

The major additions were material on regulation, based on the fantastic CGAP review of the issues by Bob Christen, Tim Lyman, and Rich Rosenberg; and material on the controversial Nigerian MFI LAPO, based primarily on the sharp work of GiveWell, as a way of highlighting concerns about the tensions in the microfinance investment industry between pressure to disburse and social performance.

I am feeling more strongly that the global microfinance investment industry, because of its scale, is throwing microfinance out of kilter. That criticism applies at least as much to public investors as private ones, so it doesn’t work to blame the profit motive. We’ve had crises recently in Bosnia, Morocco, Pakistan, India, Nicaragua… I’ve just been learning about how Nigeria blew up in its own strange way (with domestic factors mainly to blame, but some involvement of foreign investors). Perhaps the crisis in India is the needed corrective. But I will feel better if the investors were forthrightly acknowledging that sometimes they are part of the problem.

Here is the revised peroration:

I began this book with two opposing stories. One was about Murshida, who climbed out of poverty on a ladder of microcredit The other was about Razia, who slipped down a rung after taking loans. I did so to expose how storytelling forms the public image of microfinance, and to make the case for serious research. We need good research not to move beyond thinking in stories, but to test stories, to inform us about which are representative. That is as close as we can come to the truth about something as diverse as the microfinance experiences of 150 million people.
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Chapter 8 Updated

April 19th, 2011

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No chapter draft looked more archaic in my rewriting pass than that of chapter 8. When I wrote it a year ago, India was on “everyone’s watch list.” It’s come off those lists now.

So I added Andhra Pradesh to the review of recent crises. The new version (.docx and .pdf) further develops the ecological metaphor in the first version in the attempt to articulate when creative destruction is more creative than destructive. Before, I distinguished between growth and development. Growth, in credit for example, can be developmental, but this is not automatic. Now I also develop the idea that a species or a firm most enriches the system of which it is part when it connects to other actors in diverse ways. MFIs are more developmental when they take capital from diverse sources (more or less motivated by profit) and when they connect to clients with multiple services—savings as well as credit. One inspiration for me was Beth Rhyne’s analysis of what went wrong in Andhra Pradesh. Older text about the multiple roles of the conventional financial system is integrated here.

I also updated all the figures and tables, except Table 2, which I am still working on. I reorganized a bit. And I dropped what I now feel was some gratuitous negativity: harping on the point that microfinance does not play the same transformational role as conventional finance because its clients are rarely Schumpeterian heroes of creative destruction.

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Seven of Nine

April 2nd, 2011

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Heck of a week.

Last Saturday night, I learned that Mark Pitt had released a “response to Roodman and Morduch” that “seeks to correct the substantial damage that their claims have caused to the reputation of microfinance as a means of alleviating poverty.” It was a little distracting.

On Monday I spoke to faculty and then students at the Harvard Kennedy School’s MPA/ID program. And I dined with undergraduates at Dunster House, where I lived for three years. I also strolled around, seeing places I haven’t laid eyes on since I graduated 21 years ago. Boy was that powerful. Several times I came around a corner, slammed into a memory, and stopped to stare at things that weren’t there. Turns out my memories are geocoded. And most of the memories were happy, having nothing to do with getting educated and everything to do with the woman who is now my wife.

Trouble was, yesterday is the day I agreed with Nancy Birdsall as my target for readying all nine chapters for the copy editor. It was obvious by last weekend that I would miss that deadline, but I had mentally recalibrated to aim for seven of nine chapters by April 1.

I just posted chapter 7, which appraised microfinance from the viewpoint of development as freedom (.docx and .pdf). It is a challenging chapter because the concepts all have fuzzy boundaries (usury, transparency, etc.) and the evidence is fragmentary. It is also the longest. In the conclusion, I backed off trying to firmly evaluate microfinance from this perspective. Here’s the revised peroration. Comments welcome as always:
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Chapter 6 Revised

March 23rd, 2011

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A revised chapter 6 (.docx and .pdf) is up.

For me, the most interesting thing to come out of my editing was a greater appreciation of the implications of Dean Karlan and Jonathan Zinman’s study of “cash lending” in South Africa. In that study, they pioneered the methodology they would later use in their 2009 study of the impacts of microcredit in Manila, in which some applicants for credit are randomly “unrejected.”

Unlike the Manila study and the other randomized microcredit impact study of 2009, the South Africa study found that credit reduced poverty. Here are the two things I came to understand, or understand better:

  1. The effective interest rate on the loans in question was an astonishing 586%/year, compounded. The loans were repaid over four months, with monthly interest equal to 11.75% of the opening balance. Since the average balance was about half the opening balance, the monthly rate was more like 2 × 11.75% = 23.5%. Multiply that by 12 to get 282%/year.

    …or, more precisely, the loan balance was 100% of the original amount for the first month, 75% for the second, 50% for the third, and 25% for the fourth. The average of those four numbers is 62.5%, so the average balance over the four months was 62.5% of the opening balance, not 50%, and the effective rate was 11.75%/62.5% = 18.8%/month or 18.8% × 12 = 225.6%/year.

    If you do the math properly (use Excel’s IRR() function on a disbursement of +1000 and four payments of –367.5), the rate with compounding is 586%. (On the interpretation of such monstrous numbers see Does Compartamos Charge 195% Interest? and Reflections on Transparency.

    What is remarkable is that people came out ahead on average despite paying such a high rate.

  2. The key benefit of the loans lay in helping a subgroup of people get or retain jobs, not start microbusinesses. As I write in the text, citing an e-mail from Dean Karlan, “They might use the loans to buy required uniforms, or sample kits for sales work, or fix or buy a vehicle to get to work.”

Something I already appreciated, which is worth keeping in mind as you cast your mind over this study, is that subjects had a daily per-capita income of $6.50, using a purchasing power parity exchange rate of 3.87 rand/dollar. So they were better off than the people usually imagined as targets for microcredit.

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Chapter 5 Refined

March 20th, 2011

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The long march is coming to an end. As you can see, I’m making a big push to get the darn book done. I just posted a re-edited chapter 5 (.docx, .pdf). I hope to have 6 and 7 ready for the editor by the end of the month.

The original post for this chapter summarizes it.

Along with editing the whole text, I inserted a table, salvaged from chapter 4, on the prevalence of microcredit in various countries and regions; updated the tables; added some block quotes from Vikram Akula’s book on his pursuit of efficiency at SKS; fixed dated references to India and Nicaragua; stripped out some loaded, negative, passing descriptions of MFIs such of how they “impose on the time of the customers”; and responded to some appropriately challenging comments from reviewers on fine points.

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Chapter 3 Tweaked

March 14th, 2011

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I’ve just revised chapter 3 in the same manner as I did chapter 2.

I did make one significant addition to the text (.docx, .pdf): coverage of “industrial life assurance”—life insurance for the working classes—starting in 19th-century Great Britain. Before, there was almost nothing on insurance. I really like the richness this brings. I came to appreciate that Britain gave the world two major innovations in financial services to the masses in the 19th century: savings banks (postal and otherwise) and life insurance for regular folks. These contrast with microfinance today, with its emphasis on credit. It makes me wonder if there isn’t huge, exploitable potential for life insurance in developing countries now. Here are the main relevant sections (see documents linked to above for footnotes):

Britain’s second great achievement in financial services for the masses was establishing “industrial life assurance.” While savings banks arose from a charitable impulse, the sellers of life insurance to working-class people were motivated by profit from the start (if also a sense of mission). The Joint Stock Companies Act of 1844 made it much easier to start companies and sell shares to the public—perhaps too easy. The financial industry saw dozens of start-up in the 1840ss, many short-lived and no more deserving of public trust than the worst friendly societies. Historian Laurie Dennett describes the scene:

In the field of life assurance [unsound companies] seemed to succeed one another with exceptional rapidity. The Post Magazine and Insurance Monitor…, a weekly paper founded in 1840 to act as a reporter on the assurance industry and exposer of its abuses, certainly found numerous subjects for dissection….The editor on one occasion referred to an entity “brought into existence under the facilities for forming such companies by the [Act]…whose robberies amounted to £60,000,” another “composed of a low set of vagabonds, whose signatures as shareholders were procured at a pot-house for pints of beer,” and finally, one which “at the end of three years, had only £14,512 left in every shape and form out of £45,081 received in solid cash…” Charles Dickens’ “Anglo-Bengalee Disinterested Loan and Life Insurance Company” had plenty of prototypes in life, as did its dissolute President, Tigg Montague, alias Montague Tigg.

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Chapter 2 Tweaked

March 10th, 2011

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I revised chapter 2 last fall. This time through (.docx, .pdf), I mostly worked to incorporate comments from the peer reviewers. In particular, I think I did a better job of summarizing the chapter at the start and end and linking explicitly to the book’s main ideas.

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Re-returning to the Introduction

March 6th, 2011

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After completing the draft last summer, I Returned to the Introduction.

But then my peer review committee told me I needed to get to the point at the start of the book. I have now incorporated the point-getting-to text and reworked the chapter once more (.docx .pdf).

I revised the early part of the chapter, which motivates the book. Before, it referred to all the exciting microfinance investment deals in 2007 and 2008 and pointed out that we know much less about the social return to microfinance investment than the financial return. Boy did that seem out of date. Now it is about all the challenges microfinance has faced in the last two years, and the growing confusion about microfinance in the public mind. I sure hope the new version doesn’t obsolesce as rapidly as the old.

I rounded off this new description of microfinance’s muddle with a bit about Vijay Mahajan’s soul searching trip across India. I think this makes a nice metaphor for and transition into my description of my own intellectual journey, and resonates with the idea a bit later that my journey is a destination too. Like his, my journey involved listening to many voices.

I also replaced the sad story in the opening, which was about a Compartamos borrower in Mexico, with one from the Tom Heinemann documentary. Now both the happy and the sad story are about Grameen borrowers in Bangladesh. I did this to avoid seeming to side with Yunus in his attacks on Compartamos (“Grameen good, Compartamos bad”) because this is not the place to get into that debate, and to emphasize that even when focusing on one lender in one country, one can run into confusingly contradictory stories.

As always, comments welcome. I’m sure it’s still bumpy in a few places, but overall I think this is one of the best things I’ve ever written.

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Reworked Chapter 4

February 27th, 2011

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Chapter 4, “Background Check” (.docx .pdf), is a bit of a beast. It doesn’t have an analytical drive. It tells “thumbnail histories” of the different forms of microfinance in operation today, reviews some cross-cutting themes such as the historically novel focus on women, then closes with a brief statistical survey of the microfinance landscape. Because it summarizes a huge amount of terrain, it has been hard to get right. In the last month or so, I have been trying to work the knots out, especially after I got comments from the peer reviewers.

Among the changes:

  • Added a summary text box at the top.
  • Developed a direct definition of microfinance: methods of financial service provision that are suited to formal, business-like, non-governmental institutions serving the poor on a large scale.
  • Clarified differences between Accion-style solidarity lending and classic Grameen-style group credit, which is generally called solidarity lending too
  • Rewrote the history of self-help groups in India to explain the role of Aloysius Fernandez and MYRADA.
  • Rewrote the Indonesia history to deemphasize the role of Bank Dagang Bali and describe the Badan Kredit Kecematan (BKK) banks in Central Java.
  • Clarified the purpose of the “cross-currents” section as describing, rather than analyzing, various debates and dimensions of diversity within microfinance.
  • Reworked the subsection on gender to incorporate BRAC’s early role in focusing on women and to take a more balanced view on the relative importance of feminist ideas and the susceptibility of women to peer pressure in driving the focus on women
  • Lots of finer editing.

Comments still welcome. On to the next. I think and hope most of the remaining chapters will require less reworking.

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Getting to the Point

February 10th, 2011

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Last Friday, I convened a small meeting of peer reviewers of my book. Turns out getting busy experts to review a 100,000-word manuscript isn’t easy, which made invited reviewers more numerous than actual reviewers and made me all the more grateful to the latter. Beth Rhyne came in person, as did my boss Nancy Birdsall; Rich Rosenberg and Jonathan Morduch joined by Skype. (Skype’s new group video-conferencing feature worked well, by the way.) Stuart Rutherford, Greg Chen, and Deepa Narayan all sent comments by e-mail.

I think the session went really well. Happily, the reviewers did not recommend radical changes such as cutting or consolidating chapters, though one did point out that the development-as-industry-building theme comes late given its ultimate importance. The strongest message I got was exactly what I needed: get to the point. Figure out your bottom lines, state it forthrightly in the bookend chapters, and make sure the internal chapters connect to and serve those bottom lines. The technical term for this kind of advice is “kick in the pants.”

The other big message in my view was that I should emphasize the novelty of my ecumenical approach as a strength in itself, with implications for development studies more generally. To understand a major class of interventions, you need to systematically not only the evidence but the theories that link evidence to outcomes. To play off a hot trend which I think is quite valuable, randomized trials do not alone suffice to reveal the full story of the role of microfinance in development, nor provide all the relevant policy guidance. The analogy I’ve used before is with mortgages: an RCT of mortgages would not fully enlighten us about the role of the mortgage industry in the economy.

I think these two pieces of guidance go together. My compulsion to hear out all sides is a weakness and a strength. Where it is a weakness, in preventing me from taking a stand, I need to overcome it. Where it is a strength, I need to take pride in it. As you can see, this is a pretty personal process.

Pondering all this, I added the following text to chapter 1. I’m really interested in what you think:

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Revised Chapter 2

November 10th, 2010

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In my editing pass through the book, I’ve just finished with chapter 2, How the Other Half Finances (.docx, .pdf). I’m not entirely satisfied—I worry that it meanders—but I’ll leave it for now. This chapter starts the book’s approach to the grand question of whether microfinance works by looking at things from the clients’ point of view. It is most strongly influenced by The Poor and Their Money and Portfolios of the Poor.

Comments welcome, as always.

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Returning to the Introduction

July 1st, 2010

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I just posted a rewritten chapter 1 (.doc .pdf). Going over this text felt almost like archeology. As I reached the last paragraph, I realized I was looking at the oldest piece of text in the entire draft (two years old). When I wrote the original, I was naturally much less clear than now about my concluding messages—though I feel like I am still discovering those. I have also become more comfortable writing in the first person, thanks to this blog. So the new text is fairly personal in places. See what you think.

Having rewritten both book-end chapters, I feel that I am finally over the hump on this book. The process of writing-in-order-to-think is winding down.

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Hurrah, the Last/From Millstone to Milestone

May 11th, 2010

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I feel an inward tremor as I type this. I have just posted the last chapter (revised version, June 22: .docx and .pdf). I began writing almost two years ago, never thinking it would take this long. This blog has been wonderful reason for the delay. It feels very fine to have reached the end of the draft. The labor is far from over. There is much editing to do. But today the completion of the draft has gone from millstone around my neck to milestone.

I am happy with the prose of this draft. I suspect however that the logic and conclusions could be greatly be improved by feedback. Daniel, Tim, Alex, other loyal critics, and newcomers too: I hope you will dig in.

Note: There’s one hole toward the end for a paragraph about M-PESA in Kenya, which I will visit next week. Stay tuned.

Here’s the conclusion:

I began this book with two opposing stories, one of Murhsida who climbed out of poverty on a ladder of microcredit, one of Eva Yanet Hernández Caballero who, if anything, slipped down a rung. This I did to expose how storytelling forms the public image of microfinance, and to make the case for serious research. We need good research not to move beyond narrative knowledge, but to test it, to inform us about which stories are most representative. That is as close as we can come to the truth about something as diverse as the microfinance experiences of 100 million people.
Read More…

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Chapter 8: Development as Industry Building

March 8th, 2010

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At long last, a new chapter (.docx and .pdf). Each time I upload a chapter it feels like I am permanently lifting a weight off my shoulders with a mighty heave. This one took so long, I doubt it is worth the wait (or weight). It is the last of the trio of chapters that evaluate microfinance from different perspectives, this one from the perspective of what I am now calling “development as industry building.” Clunky, I know. Perhaps it should be “development as transformation.”

In the interest if getting this durn thing done, I have decided to drop what was to be chapter 9, on the selling of microfinance. My greatest regret is the loss of the clever title: The Effects of Causes. That means I have finally arrived at the last chapter, the new chapter 9 on overall implications. It will have sections on the potential of new technologies and the role of donors and investors.

Here is the conclusion. As always, I welcome comments. Thank you, loyal critics.
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Chapter 6! Development as Proven Poverty Reduction

November 20th, 2009

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I have just posted a draft of chapter 6 (.doc and .pdf). [Update: comments from Nancy Birdsall and Eben Lazarus incorporated.] More than any other so far, this draft incorporates text from this “open book” blog, forging a richer link between the two media. By the same token, regular readers of this blog will find less new in the chapter.

The subject of the chapter is what we should conclude from the academic literature on the impacts of microfinance.

I posted a draft of chapter 7 back in September. So now I have done 1–7. As always, I welcome your comments.

Here’s the conclusion:

I draw two main lessons from this tour of the evidence. First, poor people are diverse, and so are the impacts of microcredit upon them. Thus, microcredit undoubtedly helps many people. A distinction that appears particularly important in the latest results is between entrepreneurs, who are a minority, and everyone else. More controversially, I conclude that there is no convincing evidence beyond the widespread impression that microcredit raises incomes on average. That Holy Grail, though many have sought it and many have thought if found, still eludes us. It is entirely possible that for a majority of microfinance users do not invest in microenterprises, but instead use the loans to smooth spending on necessities, as we saw in chapter 2. That would show up as lower spending (net of interest payments)—and getting to eat every day. So far, the randomized studies have not checked this possibility.
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Chapter 5: Microfinance as Business

November 3rd, 2009

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I’ve just posted the long-threatened draft of chapter 5 (.doc .pdf). To write it, I started with the text of Microfinance as Business which I wrote with Uzma Qureshi three years ago in response to a request (and grant) from the ABN AMRO bank in the person of Suellen Lazarus. My last act before posting the chapter just now was to go over annoyingly astute comments on the text form Suellen’s son Eben, who served me this summer as a superlative intern.

The chapter argues that much of what characterizes modern microfinance, notably the emphases on credit, groups, and women, can be explained with recourse to rather crass commercial considerations. In other words, doing microfinance in the ways it is usually done helps microfinance institutions (MFIs) solve this problem: how do you mass-produce financial services without losing your shirt? By fully covering their costs, MFIs scale up and serve millions of people. Group lending to women, for example, turns out to be cheaper than group lending to men because women in many societies repay more reliably in the group setting. They may be more sensitive to the peer pressure, and may value access to opportunities to do business in public forums of the sort where men usually dominate.

This thesis comes at the question of the impacts of microfinance through a back door. “If the common emphasis on credit over savings, for example, can be explained as a matter of business practicality, that should seed judicious doubt that credit is what the poor most need.”

My chief influences in writing this chapter were Jared Diamond, famous for bringing an evolutionary perspective to human history in Guns, Germs, and Steel, and Pankaj Jain and Mick Moore, who wrote What makes microcredit programmes effective? Fashionable fallacies and workable realities.

I welcome your comments. Here’s the intro:
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Confronting the Evidence on Microcredit and Freedom

October 7th, 2009

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Chapter 7 of my book analyzes the impacts microfinance through Amartya Sen’s definition of “development as freedom.” It focuses on credit, the financial service whose impacts on freedom are most ambiguous. Perusing the thoughtful commentary on the blog post for the chapter draft, I was struck by how most of it deals in concepts. Rich Rosenberg points to the paradox of people exercising their freedom in order to limit it, by taking loans that oblige them to future repayments. Milford Bateman says that “The global rationale for this movement 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.”

None of the comments directly confront the evidence at the end of the chapter draft, which consists mostly of summaries of and quotes from studies done by qualitative researchers who spent weeks or months among microborrowers. That’s probably my fault. I too spend a lot of pages wrangling concepts, and put evidence at the end. You are probably too busy to read through this long draft. The post only contains the draft conclusion, in its sweeping abstractness. But on reflection, I realize that the evidence needs to be exposed. I think it founds my conclusions. It, for example, is why I came away from the chapter most doubtful about classic solidarity group lending made famous by the Grameen Bank. (Also see Why I’m Afraid to Fund Group Microcredit, the post from which this section grew.)

So here is a slightly condensed version. The draft has footnotes that link to the References.
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Chapter 7! Microfinance through “Development as Freedom” Lens

September 16th, 2009

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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:
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Chapter 4!

May 20th, 2009

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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.
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Chapter 3 Main Post: Credit History

March 9th, 2009

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Microfinance is a modern phenomenon, right? Maybe thirty years old?

Wrong.

When what is now chapter 3 (.doc .pdf) was but a twinkle in my eye, I thought it would be just a few paragraphs near the top of what is now chapter 4. But as I delved into its subject–the long history of projects to bring financial services to poor people–the terrain expanded before me and drew me in. I do believe this is the fullest review of that history, but it is superficial relative to the richness of its subject. Someone should write a book on this topic.

From the intro of chapter 3:

To the extent that microfinance is older than most enthusiasts and practitioners think it is, that begs the question of what lessons from history are being missed. What are the constants of history? What are the variables? How do economic and cultural characteristics of a country, such as wealth and tightness of community bonds, determine which methods succeed? And since history never repeats itself exactly, how does modern microfinance break from the past? What have today’s innovators contributed to the long historical flow of ideas? Those questions motivate this excursion into history.

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Illuminating Microfinance’s Past: A Bibliography

March 7th, 2009

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Herewith, a bibliography of materials that illuminate microfinance’s past. Feel free to send me additions. I suppose this should be made into a wiki page somewhere.
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Chapter 2 main post: How the Other Half Finances

February 17th, 2009

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Aside from the “bookend” chapters (now there’s an odd metaphor), this book is really a series of perspectives on microfinance: the historian’s perspective, the microfinance manager’s perspective, the economist’s perspective, and so on. The first perspective, in chapter 2 (.doc .pdf), is that of poor clients. To borrow the title of Stuart Rutherford’s great book, it is about the poor and their money.
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Chapter 1 main post: Introduction and overview

February 17th, 2009

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As I conceive it, Chapter 1 (.doc .pdf) motivates, introduces, and summarizes the book. Not surprisingly, I drafted this chapter first–back in June, in order to present the book ideas to my CGD colleagues. Since then I have written and learned much more. Once the rest of the book is drafted, I will return to this chapter and make it do a better job of distilling and communicating the conclusions. So I view the current draft as provisional.
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Summary and outline

February 17th, 2009

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Here are a short pitch and a working outline for my book. I will hotlink this entry to chapter drafts as I post them. You can also find drafts via the “Contents” list on the right margin of the blog home page.

Microfinance is a remarkable phenomenon in the world of economic development. It blends the visual appeal of smiling women with the market-oriented ethos of entrepreneurship. At once radical in its suggestion that the poor are creditworthy and conservative in its insistence on individual accountability, microcredit has attracted billions of dollars from governments, private donors, and, increasingly, the capital markets. Its success in delivering savings, lending, and other financial services to millions of poor people has generated interest and excitement among donors large and small. But critics say the excitement is so much hype, that small loans rarely transform lives, and that debt is dangerous. And the microfinance movement is split by dissent. After the Mexican company Compartamos pulled in hundreds of millions of dollars going public in 2007, Nobel Laureate Muhammad Yunus, the founder of Grameen Bank in Bangladesh decried their practice of charging the poor nearly 100% interest per annum as moneylending, not microfinance.

The book will probe many dimensions of microfinance, in order to find a firm foundation to judge its successes and failures and guide governments, foundations, investors, and private citizens contemplating whether and how to support financial services for poor people. While avoiding jargon, it will explore the history, impacts, ethics, and politics of microfinance.

Chapter drafts are posted in Microsoft Word (.docx) and Adobe Acrobat (.pdf) formats.

Chapter 1. Introduction and overview (.docx .pdf)

Chapter 2. How the Other Half Finances (.docx .pdf)
What rich and poor people use financial services for; how the poor manage money; how the financial system supports overall economic development.

Chapter 3. Credit History (.docx .pdf)
Deep history of financial services for the masses, from credit groups in ancient Athens to cooperatives in Germany in the 19th century to the small loan business in America of the 1920s.

Chapter 4. Background Check (.docx .pdf)
Stories of Yunus and other innovators who made microfinance what it is today; survey of current microfinance landscape by the numbers.

Chapter 5. Microfinance as Business (.docx .pdf)
How the need to break even, combined with an evolutionary perspective, explains much about the way microfinance is done today.

Chapter 6. Development as Poverty Reduction (.docx and .pdf)
An informed, critical look at the literature on the impact of microcredit.

Chapter 7. Development as Freedom (.docx and .pdf)
A look at microfinance through Amartya Sen’s notion of development as freedom. How much does it give the poor new options vs. entrapping them in debt? How do we think about the ancient yet live question of “usury”?

Chapter 8. Development as Industry Building (.docx and .pdf)
A look at microfinance growth as a force for enriching the institutional fabric of society.

Chapter 9. The Effects of Causes
A look at the selling of microfinance and what it says about how we aid development.

Chapter 9. Implications (.docx and .pdf)
Implications for how microfinance is supported. Implications of the success of microfinance for other domains.

References (.docx and .pdf)

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Help me write this book

February 16th, 2009

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I am using this blog to share the process of writing my book about microfinance (the mass production of small-scale financial services for the poor). The book asks and attempts to answer bottom-line questions about what we know about the impacts of microfinance and what that implies for how governments, foundations, and investors should support it.
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