The debunking industry continues to produce a steady stream of attacks on the microfinance industry, and more specifically on microcredit, fueled by the results of RCTs that have found “modestly positive but not transformative effects” of microcredit. The team at Grassroots thinks that the results of the RCTs and commentary by other informed critics provides important feedback about what works, doesn’t work — and maybe why — that industry stakeholders can use to reassess their models and approaches and improve them. But generally the debunkers take what could be constructive feedback and run with it, far enough to earn themselves points as giant-killers, but no points as builders of real world, practical efforts to address the intractable challenges of poverty, empowerment of women and girls, and economic justice. They are quick and eager to throw out the unique resource that microfinance represents: a self-supporting infrastructure reaching 300 million clients and their families with double bottom line ambitions.
A case in point is a recent article by Jason Hickel of LSE in The Guardian (this one) triumphantly unmasking, yet again, the “microfinance delusion”. In the face of the unmitigated failure of microfinance, Hickel advocates unconditional direct cash transfers as the solution to poverty. While the article correctly notes the success of cash transfers in various countries, it conveniently overlooks the fact that microfinance emerged partly in response to the unwillingness of governments to reliably fund anti-poverty programs at anything like a level commensurate with the scale of the problem. Efforts to engage market-based mechanisms, and create permanent, self sustaining anti-poverty initiatives, like some microfinance institutions, are a reaction to this shortcoming.
In the face of this consistently one-track thinking, it is refreshing to encounter some practical common sense from Maria May of BRAC, which has been patiently testing, refining and improving the microfinance model for decades (Another recent blog). May points out some of the critics’ leaps of logic, like assuming away any budget constraint and comparing grants to financially self-sustaining businesses, or reducing the increasingly diverse array of financial and non-financial products to a single micro-loan product.
May also points out that the general consensus of the researchers “is that the development community should focus on improving microfinance’s social impact, while considering when it can be an appropriate tool” . . . “rather than abolish microfinance and give up on financial inclusion.”
One of the most important lessons is that credit alone does not work. Credit products need to be paired with not only savings and insurance but also non-financial services that enable clients to lead healthy, productive lives while understanding the best ways to use the financial products that are available to them. In order to integrate this concept more deeply into our work, we initiated the Grassroots Impact First Initiative (GIFI) to work with microfinance institutions that prioritize a pro-poor commitment. We are also working with Freedom From Hunger to support their work using MFIs to improve access to health services for poor women and their families. These efforts and similar work inspired by BRAC’s dogged and patient work to refine and improve their pro-poor efforts demonstrate how microfinance can build on its successes and respond to its failures and shortcomings to better serve the clients for whom it was created.