In the noisy echo chamber of the development community, there are a lot of arguments for (emphatically) and for (tentatively) microfinance as a tool of poverty. The debate surrounds a series of experimental studies questioning the impact of microfinance in achieving its stated goals – specifically, empowerment of women and poverty alleviation. The participants are the critics and the practitioners. The practitioners tend to dismiss the critics as having blind faith in statistics and either ignoring or being ignorant to the realities on the ground, while the critics contend that the practitioners drank the Kool-Aid long ago and refuse to admit that, while microfinance is impactful, it is perhaps not to the extent they believed. Those are both exaggerated overstatements and many people bridge the divide, but it is close enough. The debate reached a fever pitch recently, with some of the biggest practitioners – Accion, Grameen Foundation, Finca, Opportunity International, Unitus, and Women’s World Banking – jointly issuing a statement defending the impact of their trade. It is a short statement and worth a read, offering a distilled version of the practitioner argument. The authors describe what they consider to be the major flaw in the critics’ argument:
Unfortunately, it is extremely difficult for studies to quantitatively demonstrate the impact of microfinance. Such studies face two fundamental challenges: their ability to capture and analyze all the benefits of microfinance, and the duration of the study itself. To obtain quantifiable data, researchers have to ask narrow questions over relatively short periods of time–-14 to 18 months in one case–-which does not always allow the time necessary for impact to manifest itself. And because of the growing penetration of microfinance, researchers are finding it increasingly difficult to find homogenous geographical regions that contain both clients who have access to financial services and those who have none.
This is all true. Statistics give an incomplete picture and do not pick up the nuanced effectiveness of microfinance, which is manifested in individual success stories rather than a large group of people moving out of poverty. Negros Women for Tomorrow Foundation is a good example of this principle at work. It periodically measures the poverty level of its clientele using the Progress out of Poverty Index
(PPI). Over the last five years, 22% have moved upward, 19% have moved downward, and the remaining 59% have remained pretty much the same. On balance, there is a net upward poverty movement, but not by much. Also, the number of clients that moved downward might have been much higher had they not been receiving microfinance services. (more…)