Friday, August 14, 2009

On microfinance

Ooh, I saw red yesterday! There in the Episcopal Cafe was a headline that read Microfinance Doubts Arise. It linked to a blog headlined Microfinance: Damned with faint praise, which linked to a study that purports to show that microfinance has no net positive impact and may have a detrimental one.

But I looked through the report and found one key element missing in the news summaries. Here's a snippet from p. 5 of the 33 page report:

...we do not address the question of whether microcredit can help the poorest of the poor — our sample frame are microentrepreneurs, but wealthier than average for the Philippines

Well, then, you're not studying the microloans that I have witnessed first-hand.

A microfinance blogger commenting on this study says it better (and is better informed than I):

Since the subjects were already in business (most commonly, running corner stores), the study could not check whether credit helps people become entrepreneurs. Also, the income floor put the study population well above the Philippine average...Meanwhile, average income for the 80%-ers is 65,979 pesos/month, or $15,835/year...That [the authors] stray so far from the $1–2/day poor we usually imagine as the target for microcredit is not a flaw, but it generates a caution for interpretation.

It is true that a study of the "poorest of the poor" population may also show these kind of results, but it would be premature to say that this can be extrapolated based on this one study of a completely different population. The studies need to be done and should be done, but the truth is it hasn't been done and suggesting that this one report tells us everything we need to know is foolish at best.

I am primarily incensed that this single report from what seems to me a very limited subject sample that doesn't actually reflect what most people think of as "microfinance" has spread from a technical report to the BBC and from there may poison the well for microfinance across the board. Will people stop microlending because "they heard it on the BBC" without understanding what, exactly, was being reported? I fear they might.

No comments: