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October 7, 2009

Confronting the Evidence on Microcredit and Freedom

Posted by David Roodman in 6. Development as Proven Poverty Reduction Tags: , ,

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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June 30, 2009

New Impact Studies of Indian Self-help Groups

Posted by David Roodman in Uncategorized Tags: ,

Manuel Bueno’s post on the NextBillion blog alerted me to two new World Bank evaluations of self-help groups (SHGs) in Andhra Pradesh, India. Both are by Klaus Deininger and Yanyan Liu.

SHGs can be seen as the Indian government’s response to that government-bypassing brand of microcredit from the upstart nation of Bangladesh. A non-governmental group (NGO) organizes 10–20 women into a group. They begin to save, putting their pooled deposits in a bank, thus “linking” to the bank. Once they have saved enough, they can also borrow from the bank as a group, then distribute the credit among themselves. Meanwhile, government regulations push the banks to meet targets for numbers of SHGs linked each year. The recruiting NGO often works with the women on things beyond finance, trying to build their self-esteem as women and their capacity as a group to make change in their communities—in a word, to empower them. (See this.) The Bangladeshi model is inferior, the minister for SHGs of the Indian state of West Bengal helpfully explained, because “the government does not support Yunus.”

The World Bank–backed program in Andhra Pradesh state appears to layer new functions on the SHGs in keeping with the Community-Driven Development trend/fad. The government provides grants that the SHGs decide how to invest. Subsidized rice is lent in-kind. I don’t know all the details. The bottom line from the point of view of evaluating microfinance is that the variety practiced here includes several complex and subsidized elements that go beyond credit and savings. By and large, the package is evaluated as a whole.

Deininger and Liu write:

As a phased random roll-out originally envisaged…was not implemented, our identification strategy has to rely on weaker assumptions.

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June 25, 2009

Why I’m Afraid to Fund Group Microcredit

Posted by David Roodman in Uncategorized Tags: , ,

Because of circumstances beyond their control (sickness, flood, drought, theft and so on), lack of skills and knowledge or taking bad decisions, a proportion of poor borrowers encounter great difficulties in repaying loans. While MFIs [microfinance institutions] suggest that such problems are overcome through ‘social support’ in some painless way this is often not the case—talk to the dropouts of MFIs! Many (though presently we have little understanding of exactly what proportion) report being threatened by group members and MFI staff or having their possessions (pots and pans, roofing iron) seized. In Bangladesh, MFI debtors have been arrested by the police (this came to light in 1997 when a police vehicle carrying such debtors crashed and the individuals concerned were killed), are threatened with physical violence (Montgomery, 1996), and the press regularly report female suicides resulting from problems of repaying loans. Many poor people are very frightened about getting into debt: this is a rational response to the dangers that arise from indebtedness to MFIs and not a ‘misunderstanding’.

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.
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