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September 28, 2009

Microfinance and the Market Test

Posted by David Roodman in Uncategorized Tags: , ,

Here’s the end of Rich Rosenberg’s new review of Portfolios of the Poor:

Hundreds of millions of poor people “vote with their feet,” demonstrating how much they value microfinance by flocking to it in droves when it becomes available, and most especially by repaying loans faithfully again and again when the predominant motive to repay is not collateral or even group pressure but rather their desire to keep future access to a valued service.

It may turn out that a year-long microloan doesn’t improve income as much as a year of women’s primary education or other social services. But the robust value proposition behind microfinance is not that each “dose” is more powerful, but rather that each dose costs much less in subsidies. Social programs like primary education and health care usually require large continuing subsidies, using up scarce tax dollars year after year. Microfinance is different: when it is done right, relatively small up-front subsidies lead to permanent institutions that can continue providing services year after year with no further subsidy needed, and expand those services to reach many millions of low-income clients who badly want them. (This, by the way, is not an argument for microfinance. It’s an argument for microfinance done right.)

In the conceptual framework for my book, this is akin to the institutional development definition of success: If a microfinance institution is growing, competing, innovating, winnings thousands or millions of clients, creating jobs—isn’t that the essence of economic development? You can see this view also in Elisabeth Rhyne’s letter to the editor in response to last week’s Boston Globe article. I will analyze the success of microfinance in this perspective in chapter 8—my next task. I think this viewpoint deserves more attention than it gets, even as I am mindful that one can’t ignore impacts on clients (otherwise, we should hail the global success of the tobacco industry as a boon for the poor).

I agree with Rosenberg that Portfolios of the Poor is a great book. In my set-up, it speaks more to chapter 7, on the the ways in which microfinance enhances and restricts freedom. In my own review of the book, I wrote about what I learned from it (e.g., for the poor, microfinance is distinctive in its reliability) and what I wanted to read more about (e.g., roles of men and women within the household in the decisions studied in the book).

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May 23, 2009

Cross-post Review/Jyothi Makes the Economist

Posted by David Roodman in Uncategorized Tags: , ,

On 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:

Stuart Rutherford interviewing Bangladeshi, March 2008

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March 25, 2009

Cross-post: Dambisa Moyo Discovers Key to Ending Poverty

Posted by David Roodman in Uncategorized Tags:

Over on CGD’s Voices from the Center blog, I just posted a review of Dambisa Moyo’s book Dead Aid. In reading her book, I kept a promise I implicitly made last month in the present blog, when I raised eyebrows at her simplistic statements about aid and microfinance.

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February 22, 2009

The Anti-Bono: microfinance is not aid

Posted by David Roodman in Uncategorized Tags:

Dambisa Moyo. Photo: Helen Jones PhotographyZambian-born economist Dambisa Moyo has a new book coming out called Dead Aid. In the lead-up to the launch, she is doing interviews with outlets such as the New York Times and Financial Times. She appears to make an old and serious argument, going back at least to P.T. Bauer’s 1971 Dissent on Development, that foreign aid does harm by reducing the accountability of government to the governed. The potential harm is especially great in Africa, where many states get large percentages of their budgets from aid. (For a couple of CGD works on this theme see Moss, Pettersson, and van de Walle’s Aid-Institutions Paradox and Birdsall’s Do No Harm.)

In case you hadn’t noticed, one thing that distinguishes Moyo from Bono, Geldof, Sachs, and Easterly is that she is not a white guy. She is African. So she is powerfully positioned to shoulder her way into that constellation of figures, each of whom has to some extent gained fame by becoming a caricature of an extreme position in the grand debate over whether aid “works.” (OK, some of those guys also wrote some good songs.)
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