I have reworked and reposted the concluding chapter (.docx and .pdf), which benefited from comments on the original and conversations with Stuart Rutherford, Jonathan Morduch, and others.I have found it a real challenge to come to a "verdict," on microfinance, or at least a distillation that looks back, looks ahead, and fits in a few sentences. Microfinance is many things to many people and any distillation must do some injustice to that diversity. At the same time, I feel that the book must get to some bottom line.I decided at least for now to cut the material on an international deposit insurance fund, which I had worked through on the blog. I think it may get into a level of detail that does not fit the chapter, and which is not where my strengths lie.I filled out the section on technology, drawing on my blogging on M-PESA.And I think I am a bit less hard on microcredit now. The metaphor I hit upon is that of a prescription-strength medicine. Microcredit can be healthy in moderation, giving people another way to discipline themselves into setting aside money for important purchases. The danger comes when it is pushed hard; and the danger is real in an environment where people and institutions act as if it is automatically good, in which cheap wholesale credit for microcredit is plentiful. To that extent the mythology of microfinance is not just deceptive, but potentially destructive:
Enthusiastic flows of money into lending are inherently dangerous. They can reward overly-rapid lending and, in competitive markets, nearly force it through a vicious cycle in which each lender strives to keep up with its peers.
By and large, there is no well-trained doctor in the international microfinance scene who is carefully meting out appropriate doses of credit to each microfinance institution (MFI) and assuring that they do the same with clients.I realized that asking whether microcredit helps people is like asking whether aspirin or a home mortgage is good for you. It depends on the dose. That means that while high-quality impact studies are valuable, they can never give us the whole story, for each is a static snapshot. (Often, it should be said, of impacts at low doses, because randomized trials are often performed as MFIs roll out services to new customers, which in microcredit means making those small first loans.) Much of the story of the impact of credit lies in the dynamics of the market, how it evolves over time, as we have just seen here in the United States. You don't understand those through traditional impact studies.It also means, by the way, that impact studies ought to report doses and impacts with equal prominence.
