CGD in the News

Hard Questions for Microfinance (Devex Newswire)

October 17, 2012
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Senior fellow David Roodman is quoted in a Devex piece on microfinance.

From the article:

It is safe to say that few development practices in history have been elevated to the celebrity status enjoyed by microfinance.

Part of the appeal of microfinance is the idea that it is a transformational type of assistance to the poor that is nearly limitless in its possibilities, said David Roodman, a senior fellow at the Center for Global Development in Washington D.C. who has written extensively on microfinance.

“You can do anything with money,” said Roodman in a telephone interview. “If you build a well, it can only do one thing. With money you can imagine a million possibilities, a million story lines. I think it really fires the imagination. There is a real sense that you are not just helping people, you are transforming their lives. There is this notion that credit springs people out of the poverty trap.”

Microfinance expert David Roodman noted that microfinance, at its best, efficiently delivers credit to millions of people who need it. This is evidenced by the fact that despite the problems, the number of people seeking microcredit is not diminishing. But, he said, it can also be a powerful tool for harm.

“Credit is a very dangerous game,” said Roodman. “Credit is both useful and it also something that can hurt people, especially vulnerable people. I’m not prepared to say we shouldn’t offer it all because hundreds of millions of people are voluntarily using this service. It must be useful to them. We need to have healthy balances between taking care of the clients and wanting to expand in order to serve more clients.”

“On current evidence, the best estimate of the average impact of microcredit on the poverty of clients is zero,” he continued. “So microcredit as a whole appears neither to live up to the hype nor deserve the harshest attacks against it as enslavement by debt. It isn’t a miracle cure for poverty, and it is not the financial equivalent of cigarettes. Instead, the commonsense idea that credit can help in moderation and harm in excess appears close to the truth.”

Read it here.