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Independent research & practical ideas for global prosperity
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Independent research & practical ideas for global prosperity
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December 27, 2009Stuart Rutherford’s Insights into Microfinance (The Prism of History)Posted by David Roodman in Uncategorized Tags: development as freedom, history, impacts, industry building, reading2009 brought an embarrassment of riches in readings on the impacts of microfinance: Portfolios of the Poor, two randomized studies of microcredit and one of microsavings, and—at least worthy of a footnote—my challenge, with Jonathan Morduch, of older, non-experimental microcredit impact studies. All that overshadowed what otherwise might have been the most important publication on microfinance this year: a typically understated volume by Stuart Rutherford called The Pledge: ASA, Peasant Politics, and Microfinance in the Development of Bangladesh. It’s not obvious why a history of Bangladesh’s third-largest microcreditor, ASA, should top your reading list. But this is written by a man who has been visiting Bangladesh for a quarter century, who started his own innovative microfinance institution there, who is fluent in Bangla, who has spent countless hours interviewing poor people on several continents about how they manage money, and who brings a careful intelligence to all he surveys. Almost inevitably, the book is shot through with insights about the history of microfinance and its practice today. I read this “biography of an NGO,” to borrow from the title of the 1995 version of the work, as part of my labor on chapter 8, in which I am looking at success in microfinance as success in building organizations. I will not attempt to review the book. Rather, I will quote extensively from it, as I did last week from Beth Rhyne. In effect, this is a scattered, involuntary guest blog post. I hope you like it. I am sharing my highlighting with you. 6 Comments »November 17, 2009Groundswell on Responsible Lending: Good Words, Uncertain DeedsPosted by David Roodman in Uncategorized Tags: bubbles, development as freedom, transparencyCGAP’s ever-thoughtful Kate McKee blogs:
She goes on to list the pressures they mentioned. The CFI blog recently reported that the MIX has released its first round of data on what microfinance institutions (MFIs) are doing to protect clients from over-borrowing and other credit dangers. We learn for example that “all MFIs reporting give their clients a chance to ask questions and get information before they sign a contract.” It is encouraging that top-level leaders at so many MFIs are thinking about these issues. No doubt the survey and the related Smart Campaign are conceived to prod those leaders to emphasize these priorities even more as managers. So these efforts deserve applause. Of course, what happens out in the slums and villages where credit officers work will never line up exactly with official policy. What is actually going on is hard to know, and seems ripe for research. I think it matters a lot for the question of whether microcredit is empowering people. Comment »October 7, 2009Confronting the Evidence on Microcredit and FreedomPosted by David Roodman in 6. Development as Proven Poverty Reduction Tags: development as freedom, drafts, self-help groupsChapter 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. Comment »September 16, 2009Chapter 7! Microfinance through “Development as Freedom” LensPosted by David Roodman in 7. Development as Freedom Tags: development as freedom, draftsIt’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: 14 Comments »July 16, 2009Indicators of (Dis)empowerment: Interest Rates Overrated? Repayment Rates Underrated?Posted by David Roodman in Uncategorized Tags: debt trap, development as freedom, ethicsIn my writing now, I am sorting through lines of thought on how microlender behavior enhances or reduces the freedom of poor borrowers—freedom in Amartya Sen’s definition, as agency in one’s own life. The oldest strand here is that of “usury,” the idea that charging interest above some level (maybe zero) is unjust, akin to the full-bellied selling food to the starving for a profit. As you probably know, the Compartamos IPO revived within the microfinance world the ancient debate over usury. Compartamos borrowers paid 100%/year while the Compartamos founders earned millions of dollars—and the scorn of Muhammad Yunus. Probably most Compartamos critics accept that the poor should have to pay more for credit than the rich—lending in small amounts costs more per dollar—but see 100% as beyond the pale. Fortunately, a recent CGAP report finds that such rates are exceptional. Fears about high interest rates may be overwrought. It occurred to me that another oft-cited microcredit rate resembles the interest rate more than is usually appreciated, and perhaps ought to be worried about more: the repayment rate. Like the interest rate the on-time repayment rate in microcredit exceeds rich-world norms, enough to startle newcomers. Among 718 microfinance institutions (MFIs) that voluntarily supplied relevant data to the MIX Market for 2007, the median PAR 30 rate was 3.4%. That is: for half the MFIs, repayments overdue at least 30 days constituted 3.4% or less of outstanding loan balances. 85% reported PAR 30 below 10% of outstanding credit. This graph tabulates the MFIs in that 85%: Comment »June 25, 2009Why I’m Afraid to Fund Group MicrocreditPosted by David Roodman in Uncategorized Tags: development as freedom, reading, self-help groups
That’s from David Hulme’s “Is microdebt good for poor people? A note on the dark side of microfinance,” which appeared in the Small Enterprise Development and What’s Wrong with Microfinance? I quote it for the exhortation to talk to all microcredit clients, including dropouts, in order to understand the full implications of microfinance for women. I’ve been reading studies of this subject in the last few weeks. Two headlines: 1) If one defines “talking to” not as running through survey questions to feed into quantitative analysis but as in-depth “ethnographic study” interviews, then it is the true that researchers rarely talk to dropouts. 2) The information we do have about microcredit’s losers worries me. To show what is shaping my thinking, I offer that most scintillating of Internet content types, the literature review. I encourage you to persevere because I reach a big conclusion that even I am surprised by. You are watching me make some key judgments, live. And you can participate in the deliberations. Comment »June 17, 2009EmpuzzlementPosted by David Roodman in Uncategorized Tags: development as freedom, readingOne perspective through which I am judging microfinance is Amartya Sen’s notion of development as freedom. What do we know about when microfinance gives people more agency in their lives and when it, contrarily, reduces their control over their circumstances (the main worry being debt traps)? With regard to microfinance, “empowerment” usually refers specifically to helping women break the bonds of sexism within their families and societies. But for me it means increasing agency in Sen’s more general sense. Nothing in this book project has puzzled me more than this question as it relates to microcredit. Sen sounds cautiously optimistic:
1 Comment »May 23, 2009Cross-post Review/Jyothi Makes the EconomistPosted by David Roodman in Uncategorized Tags: development as freedom, reviews, the poor and their moneyOn CGD’s Voices from the Center blog, I just posted a review of Portfolios of the Poor: How the World’s Poor Live on $2 a Day, by Daryl Collins, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven. The Economist did a story on the book featuring Jyothi the informal savings collector of Vijayawada, India. If you read my draft chapter 2, you know about Jyothi already. The common source for Jyothi’s story is of course Stuart Rutherford, who met her and wrote about her in The Poor and Their Money. Last year, I had the privilege of joining Stuart for a day of research outside Dhaka, Bangladesh, which consisted of him and his long-time collaborator S.K. Sinha asking people about their experiences with ASA. Here, he is meeting a man who belonged to ASA in its early days:
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