A recent post on NPR's Planet Money blog, features an interview with senior fellow David Roodman on microfinance.
From the Article:
I spoke recently with David Roodman, who is writing a book on the history of microfinance, and who gave me his take on what's going on. A few key points from that conversation:
* The founders of a for-profit microlender in India made tens of millions of dollars when their company went public last year.
"It was in all the local newspapers how rich these people were getting," Roodman told me. "That had an important psychological and political impact. ... They're making all this money off poor people. You can imagine how that plays."
There was also a rash of suicides last year among microfinance borrowers. And leaders in the state of Andhra Pradesh saw microfinance threatening a form of community-based savings groups that they supported. In response, Andhra Pradesh passed a new series of regulations that will have the effect of shutting down microlending in the state, which has been a major center of microfinance, Roodman said.
This is part of a broader debate about the place of for-profit companies in microfinance. On a Planet Money podcast last fall, Muhammad Yunus, the father of microfinance, argued that if you have investors who expect profits, you'll ultimately turn into something more like a loan-shark than a do-gooder.
Vikram Akula — one of the people who made lots of money in a microfinance IPO last year — argued that raising money from profit-seeking investors is the only way to spread microfinance quickly around the world, and will benefit the poor.
Roodman suggested that the debate may yield more for-profit companies that limit the profits they take, and cap the pay of senior officials. Some companies are already developing this model, he said.
* New studies found limited benefits for microfinance borrowers. One study of borrowers in India reported, among other things, that "No evidence was found to suggest that microcredit empowers women or improves health or educational outcomes" for their families.
The studies may have been too brief to show the benefits of the loans. Follow-ups will track borrowers for three years, which should be a better measure. "If they get similar results at three years, I think that’s very strong," Roodman said.
* "Credit is just dangerous. It’s like a drug ... and microcredit is not exempt," Roodman said.