Meeting of the Minds? Researchers, Microfinance Leaders at CGD

On Friday afternoon, the Center for Global Development and ACCION International's Center for Financial Inclusion convened a "roundtable" meeting of U.S.-based microfinance leaders and researchers to talk about the interactions between their two professional domains. What does the latest research tell us or not tell us about how microfinance works? What can can each group do to improve how it communicates about impacts? How can each best support the work of the other? The event was the brainchild of CFI's Elisabeth Rhyne, and hosted at CGD. Comments were not for attribution without permission.The CEOs of ACCION, the Grameen Foundation, and Opportunity International, namely Michael Schlein, Alex Counts, and Adrian Merryman, attended, as did people from Kiva, FINCA and CHF International. All these organizations run or support microfinance programs in many countries. Proxying for the research community were Jonathan Morduch of NYU and the Financial Access Initiative, Dean Karlan of Yale (he's also a CGD non-resident fellow), and Iqbal Dhaliwal, Director of Policy at MIT's Poverty Action Lab. Also there were Rich Rosenberg of CGAP, who has been both a practitioner and an analyst, and my colleague Liliana Rojas-Suarez.Personally, I see the meeting as responding to the rupture created by the release last year of randomized studies of the impact of microfinance. Putting the question of whether microfinance reduces poverty on average to such a rigorous test was healthy---and impertinent. The studies found no clear effect on bottom-line indicators of household welfare, and the press unsurprisingly accentuated the negative. "Perhaps microfinance isn’t such a big deal after all" and "it looks like ‘microlending’ doesn’t actually do much to fight poverty," ran real headlines. They posed a public relations challenge for microfinance groups, or at least for the network organizations based in the west. And I think they also forced some tough thinking within the groups about what we know about impacts and even how we should define success. The events also raised questions about whether researchers can write and talk about their work in ways that will reduce misleading coverage. For their part, researchers seem particularly interested in which questions they should study to produce the most useful knowledge for practitioners. The practical questions are what services to offer and how to target the people most likely to benefit.After such a contretemps, it seemed therapeutic, shall we say, to bring some of the key players together to talk. Working at the intersection of rigorous research and practical ideas, CGD was pleased to host. Here are highlights. I offer these more as a participant than a perfectly even-handed rapporteur:

• Jonathan, Dean, and Iqbal presented the headline-grabbing work of 2009: the Hyderabad study, the Manila study, and Portfolios of the Poor.
• One person commented that it seemed strange that they hardly referred to the older, non-experimental studies. It was as if 20 years of research on the impacts of microfinance---much of it more positive---never happened. I agree that academia has some explaining to do: first the most prestigious study says microcredit reduces poverty, then it is overturned even as ambitious, young researchers arrive on the scene with new studies, hardly mentioning the past. Still, as I said in the meeting, I've delved into the older studies more than anyone, except possibly Jonathan, and that exploration has convinced me that such studies have serious problems. I told the story of how a randomized study contradicted previously influential non-randomized studies and cut breast cancer. For more of my take, see these posts.
• Rich (cited with permission) cut to the chase: "You gored our ox!" He was being friendly, not complaining. For some 25 years, microfinance organizations have put out the message that microfinance reduces poverty. Now his best reading of the evidence is: "we don't know." He asked whether the bad headlines had affected anyone's funding but got little response.
• Someone pointed out that two big stories buffeted microfinance in 2009. The second was about microcredit bubbles. (See also.) I wondered aloud whether this meeting was fighting the last war. If yet another study emerges showing no average bottom-line impact, will the press even notice? Maybe the bigger threat is indeed the bubble story, especially if something happens in Bangladesh.
• Some argued that academics should take more care to write their papers to prevent non-experts from overestimating their scope. I think a typical research paper states a broad question for motivation ("does microcredit improve welfare?"), then zeroes in on a particular context such as the slums of Hyderabad. So obvious is it to the primary audience of such papers---academics---that you have to be careful about generalizing from one case, that this often goes unsaid. Then a non-expert can read the paper and think it is testing globally whether microfinance "works." The question is, can researchers do better at writing for both audiences at once? Judge the recent papers yourself.
• Something that interested (only?) me was what the financial diaries made famous by Portfolios of the Poor tell us about impact. The agenda asked, "How to translate findings from the diaries into testable hypothesis?" To me, this almost implied that tracking people's money management sheds light on the impacts of microfinance only by generating hypotheses for randomized testing, such as: "Does microcredit help people smooth consumption, so that they go hungry less often?" I think diaries are good for that, but to suggest only that is to undersell them. I doubt that Stuart Rutherford sees his research as merely generating hypotheses for randomized trials. In a world without limits, perhaps we could put every question to randomized tests in every context. In reality, the knowledge from such studies will always be fragmentary. Indeed, every approach to knowledge has distinctive limits. So the portfolios of the poor fools like me who invest energy in understanding impacts should be diversified. (Would that be epistemological pluralism?) That is why in the meeting I riffed on the three definitions of success at heart of my book (chapters 6, 7, and 8). Without question, microfinance has given many people more control over their lives (freedom) and built dynamic businesses and businesslike institutions. Both gains are central to the processes of economic transformation we call development.