If I had had the stamina, I would have inserted into my book a chapter on the history of the microfinance movement.
Central to that story would have been the work of Sam Daley-Harris. He was drawn into activism in the late 1970s by the, well, cult-like est movement and associated Hunger Project, which had the grand goal of eliminating world hunger by 1997 (and apparently didn't do much practical to achieve the goal). In 1980, Sam founded the more practical, and at least as disciplined, grassroots lobbying group Results, which in the early 1980s persuaded the U.S. Congress to increase funding for Oral Rehydration Therapy and the UN's International Fund for Agricultural Development (IFAD). These were remarkable feats for a mostly-volunteer, start-up nonprofit.
As it happened, IFAD was an early funder of the Grameen project in Bangladesh. An IFAD documentary on Grameen brought microcredit to Sam's attention in 1985. He later introduced Muhammad Yunus to the American Congress and press. As I recall, a story in the Christian Science Monitor led to a segment on 60 Minutes in 1990. Yunus was catapulted into fame in the US and beyond. Sam matched that publicity coup by organizing the Microcredit Summit in Washington, DC, in 1997, whose headliners included First Lady Hillary Clinton and Bangladesh Prime Minister Sheikh Hasina. (I think FINCA founder John Hatch first suggested the Summit.) At the event, a grand goal was announced: bringing microcredit to 100 million by 2005.
The Summit and the ensuing, permanent Microcredit Summit Campaign have been a major force behind the global microfinance movement, combining savvy publicity with behind-the-scenes lobbying for funding. Each year the MCS has released a painstakingly collected tally of microloans worldwide. After the 100 million goal for 2005 was met, the campaign issued two goals for 2015: 175 million of the poorest with microcredit and 100 million people lifted out of extreme poverty (under $1.25/day).
Two days ago I participated in a public conversation for the launch of the 2013 report. Joining me were host Larry Reed, moderator Susy Cheston, Wendy Abt, and Alexia Latortue. Speaking at the event, I admit, forced me to read the report more closely than in the past. Herewith a few thoughts.
- I enjoyed the report. It is a short, clearly written sampler of current thinking in the microfinance world, covering such topics as economic psychology and "graduation programs," which assist the poorest with a package of services and assets that will, it is hoped, reduce their poverty and prepare them for microfinance.
- The most striking finding is that in 2011, for the first time, the number of microloans fell---and sharply. The graph is below. Most of the decline happened in Andhra Pradesh, but also some in Bangladesh (which I don't know how to reconcile with the Mix Market's finding of little change in 2011).
- Yet the report's cover and title de-emphasize this arresting drop. The title, "Vulnerability," connects to a quote in the report from India microfinance veteran Vijayalakshmi Das. Identifying with microfinance institutions (MFIs), she said, "we are as vulnerable as our clients." That is, MFIs will be fragile as long as prey upon the vulnerabilities of the poor. They lost sight of their clients' interests and paid the price. It's a compelling formulation, and resonates as we try to understand what went wrong in Andhra Pradesh, and why the global total fell. But I wonder if it is the whole truth. In the U.S., payday lenders seem to be making a steady profit off a clientele whose finances are far less steady. In Mexico, so is Compartamos.
Broadly, the interests of merchant and customer conflict on some margin and coincide on others. Many MFIs could gain by raising interest rates, and hurts clients. Yet clearly MFIs will go bankrupt if all their clients do.
None of that is new. MFIs have always said that they were succeeding by helping their clients succeed. What is new is that in India, it came to appear that were not, in some cases. So what we need to learn from India is not that MFIs should remember their clients' interests, but how the MFIs came to collectively work against the interests of some of their clients.
- An implication of the vulnerability theme is that some of the loans in Andhra Pradesh, and by implication elsewhere, were harmful. With microcredit, more is not always better. That cuts against the historical messaging of the MCS, with its goals and tallies and its fusing of a goal for outreach with one for poverty reduction. The general impression has been that expansion is urgent and equatable with poverty reduction.
- The text thoughtfully covers both mobile money and graduation programs. I found the discussion subtly asymmetric, cautious about high tech and more hopeful that graduation programs represents the best path for MFIs wanting to reduce the vulnerability of clients and themselves. One need not choose sides, and the report properly captures many nuances in these topics. But I'd argue that if anything the report gets things backwards. Mobile money is delivering useful financial services to tens of millions of people in a businesslike way. In my view, that is true to the spirit of microfinance. As for graduation programs, they appear in randomized trials to be helping people too. This is great. But to my limited knowledge, it's not clear that the financial services that are part of these packages or become available after are key to this impact. So is it perhaps provincial to call them "graduation" programs, if by that is meant graduation to microfinance? Maybe giving very poor people carefully chosen goods and services is a good way to help them, regardless of whether it leads to greater microfinance use. Would we describe the U.S. food stamp program as a graduation program meant to increase financial access?
I think microfinance has succeeded mainly by streamlining, not adding expensive extras. If adding the extras helps people and donors are willing to fund it, that's excellent. Whether it's microfinance, I don't know. So while I applaud the pragmatic creativity of BRAC in developing the approach and the rigor of Ford and CGAP in evaluating it, I fear that casting it as a species of microfinance at once belittles it and exaggerates its promise for mainstream MFIs.
As usual, it is the friction of disagreement that most excites me to write. Yet there is much I like in the report and I encourage you to peruse it.