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David Roodman's Microfinance Open Book Blog

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A question I've heard frequently in the last year: Have microfinance's travails affected its support from donors and social investors? When asked, I mostly have said I don't know, and pointed to Kiva's apparently continuing buoyancy. Now Credit Suisse, which co-founded and runs microfinance investment funds for responsAbility, and five American microfinance groups gathered under the name of the Microfinance Communications Council have released a study of current perceptions of microfinance among "wealth holders" and their advisers.

The results are not too surprising. Asked "What is your current perception of microfinance?", by far the most common response was "Generally positive, but MF has challenges to deal with." One barrier to greater investment in microfinance is the "perceived lack of track record in social and financial performance." And "several respondents stated that the effectiveness of microfinance needs to be proven, for example, through 'rigorous assessment of the impact the organization achieved.'"

I have emphasized before that a lot of the perversities and internal tensions of charitable projects ultimately trace to the foibles of the donors. If the donors respond more to stories than statistics, then aid forms that generate better stories will get more money---and do---even when the statistics are not there to back up the claims of impact. Perhaps I detect some of those classic foibles in this report.

On the one hand, the donors demand evidence and realism:

…many mentioned the need for clear communication on how microfinance works: the fundamentals of microfinance and microenterprise economics, the justification of interest rates charged to end-users, and the alternatives (or lack thereof) available to them. Another important point raised was to be realistic about what microfinance can and cannot achieve. One respondent declared that MFIs need to “proactively communicate” that microfinance was “not a silver bullet,” and emphasized that communication “should be characterized by frankness and explaining the natural limits of microfinance.”

On the other, hand:

They expressed the desire to see more success stories about microfinance from the perspective of both social and financial impact.

And for some, personal experience may count more than more-objective analysis:

Those participants who were closest to the topic mentioned that personal meetings with management and trips to the field made a difference in their decision-making.

Or am I reading to much into the results? See what you think.

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CGD blog posts reflect the views of the authors drawing on prior research and experience in their areas of expertise. CGD does not take institutional positions.