Posts in: 5. Microfinance as Business

 

November 3rd, 2009

Chapter 5: Microfinance as Business

Posted by David Roodman in 5. Microfinance as Business Tags: ,

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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