Sensible Microfinance Research, Findings and Media Coverage
It has been a difficult couple of years, in terms of having microfinance researchers, practitioners and the media working together constructively. Naturally, there have been some notable exceptions to this unfortunate trend, and some of the damage has been done despite good intentions, if not outright idealism.
One positive voice in this charged environment has (perhaps surprisingly) been the Economist, which has been fairly balanced as well as engaged during this entire period, having recently written about about a landmark — and controversial — study about the impact of microcredit in Bangladesh that others mostly failed to cover.
But rather than rehash all these difficulties, let me draw your attention to a new article in the Economist. The article makes an obvious and important point (one that is covered towards the end of the blog): a new research report (not to mention common sense) suggests that, at least in the context studied, any given form of microcredit will not be relevant or helpful to all poor people.
To me, this does not mean that entire classes of poor and unbanked people can’t benefit from any form of microcredit or microfinance, but rather that people need to be connected with those products that meet their needs. (Though others could view these findings differently.) In any case, this finding is a strong affirmation of Fonkoze’s approach to segment the poor and serve each segment with a suite of products designed to meet their needs – a concept captured graphically with its “staircase out of poverty.” It also reinforces the concept of “human centered design” as it applies to microfinance, a topic about which Grameen Foundation recently issued an important report.
The main thrust of the Economist article is analyzing a new study that looked at what happened when one group of people was offered microloans and another, comparable group was given microgrants. Basically, those who took the loans benefitted. The same was true of people who were given the microgrants, an approach that is at risk of becoming the next international development fad, or as the Economist terms it, a new “panacea” (but I digress). It is important to note that these were truly microloans (average size: $113) and microgrants (average size: $140). They were given in a very poor environment: rural Mali.
The results were pretty impressive. The Economist summarized them thus: “Both the loans and the grants had clear positive effects among the beneficiaries; more land was cultivated, use of fertilisers increased and profits from self-employment rose in comparison to the families that were given neither.” Furthermore, “the positive effects of both loans and grants that the researchers found show that many poor people face liquidity constraints that prevent them from investing in capital.” [Emphasis added.]
In a second part of the study, some of the people who declined microloans were selected randomly and given microgrants, and there was no measured impact – prompting speculation as to why this was the case. (Above I share my unproven theory, which is that the discrepancy in impact is related to the appropriateness financial products.)
Regarding Fonkoze, this is an endorsement of the idea that for some poor people, grants (often referred to as asset transfers) are the most appropriate product, which is a pillar of the CLM program (the bottom step of Fonkoze staircase). Other studies have confirmed how effective such “graduation programs” can be when they are delivered competently.
Regarding research and microfinance, about which I have written before (such as here), let me note that later this week I will be participating in a seminar on “Lean Research” being pulled together by colleagues at Tufts University and MIT. (Kim Wlson of Tufts talks about “lean research” in this interview.) I am not sure what lean research means exactly; I asked the organizers to define it for me as I prepare my presentation, sparking an invigorating exchange. In general it seems to describe research that is done in practical ways that are designed to maximize the role of – and benefits to – the research subjects, and minimize the costs and other potential negative impacts to those being studied. If it turns out to be an interesting gathering, I’ll report on it in this blog.
Also, Grameen Foundation is working towards publishing a third in its series, “Measuring the Impact of Microfinance” – which is meant to demystify and present in a balanced and non-technical way what recent impact research says about microfinance’s performance and potential. Kathleen Odell has volunteered to do the research pro bono once again (in other words, as part of her academic appointment at Dominican University), and we are raising some money to cover the costs of printing and distributing it in the fall of 2015. So, stay tuned.