Development Economics

The "Entrepreneur Myth" Myth

Muhammad Yunus, the godfather of microfinance, contends that everyone is an entrepreneur.  And microfinance is about individual economic empowerment, built on the premise that credit is both a human right and a path to economic freedom.  This reading has been distorted by those who talk about the “entrepreneur myth,” which says that microfinance romanticizes the poor by pushing a false by-your-bootstraps narrative.  This narrative, in turn, undermines development by giving the poor something they don’t want – credit for a business – instead of something they need, which is steady employment.  This argument isn’t necessarily untrue, but it is irresponsibly oversimplified and demonstrates a lack of grounding in reality.   I want to discuss two articles that address this issue and use them to explain why this reading of microfinance is not only flawed, but is counterproductive in serving the poor. [caption id="attachment_1140" align="alignright" width="300" caption="Rational actors in the U.S."][/caption] The first one, titled “Romanticizing the Poor” from the Stanford Social Innovation Review, is a bit more difficult to refute, in part because I agree with the premise but not the logic, and also because I am intimidated by the fact that the author, Aneel Karnani, is an economics professor of South Asian descent and, I would have to assume, intellectually superior to me.  But I'll try.  The article is less a refutation of microfinance as a poverty alleviation strategy as it is a caution against the merits of market-based solutions in general.  According to Mr. Karnani, the poor are not rational actors when it comes to economic decision-making.  Therefore, the argument goes, it is misguided and potentially harmful to try to apply free-market strategies – like microfinance – when the spending behavior of the poor is irrational.  He highlights the fact that the poor spend a disproportionate amount of money on booze and cigarettes at the expense of healthcare and education (Nicholas Kristof’s most recent article discusses the same issue).  The poor are more prone to impulse buying, so introducing more money and more material product choices will just drive them deeper into debt:

Many advocates of market-based solutions to poverty view poor people as rational consumers who, if given more options, would make better choices—that is, choices that would increase their economic welfare. They see no problem with encouraging the poor to spend their already meager incomes on low-priority products and services. They further argue that the poor have the right to determine how to spend their limited income and are in fact the best judges of what is in their best interests.
I don’t dispute the truth of these statements, mostly because I haven't read the research.  I would say it's not unreasonable to say that adults should be treated like adults when it comes to making decisions about how they spend their money.  Either way, they are irrelevant to an argument against microfinance.  (more…)

Microfinance

Talisay to Bago: A Day’s Work

On Wednesday morning, I woke up at 7:00 to get ready for call I had with some head honchos at Kiva about how we can put solar energy loans up on the Kiva website.  After that, I had to talk to the Kiva microfinance partnerships manager for Asian MFIs about an Excel model he built that automatically generates profiles to be uploaded onto the Kiva website.  I am modifying it to fit the specific needs of NWTF, but the process of following his logic is complicated and tedious.  I needed to go straight to the source.  By 9:30, I was ready to officially start the day. [caption id="" align="aligncenter" width="350" caption="Awaiting the drill."][/caption] [caption id="" align="alignright" width="300" caption="The military dentists helped with the mission."][/caption] Last Saturday, a group of 26 Canadians came to Bacolod as part of a dental mission organized by the Rotary Club of Vancouver.  There are five dentists, a handful of hygienists, and others that are distributing eyeglasses or acting as gophers.  The mission is being held in a gymnasium in the city of Talisay, about 20 minutes north of Bacolod.  The group sees between 200 and 300 clients per day, performing mostly extractions with some fillings.  Clients hail from mostly the surrounding branches, which also happen to be first branches to post Kiva clients.  I had heard that the clients from Hinigaran branch would be at the mission on Wednesday.  I’d been meaning to get down to Hinigaran for a round of client interviews, but hadn’t had the chance.  Also, collecting information for Kiva journals usually means a loan officer or branch manager has to take you around to each client – a nuisance, to be sure.  So, armed with a list of Kiva clients in Hinigaran, I caught a ride in one of the vans heading that way. (more…)

Microfinance

What I Do: Borrower Interviews

As a Kiva Fellow, I go to the field to interview borrowers about the status of their loan and talk about the business, the family, and their dreams for the future.  Usually I do a short write-up to update the Kiva lenders, but sometimes I go overboard and write an essay.  This is not representative of most journal entries, but I found her to be such an interesting client that I wanted to share it.  I titled this journal update "Glenda's Business and the Economics of a Half-Hectare Farm."  It only went out to 13 people, so I'm hoping for a larger audience here*: (more…)

Microfinance

Branch Rollout in Cebu

[caption id="attachment_610" align="alignright" width="300" caption="The ubiquitous "Principles of Dungganon" sign."][/caption] This weekend I went to Cebu, an island east of Negros, for the Kiva rollout in the NWTF branches.  I traveled as part of a five-person team, including Massah, the photography consultant, Raymond, the research manager, Jubert, the IT manager, and Presy, the Kiva coordinator.  Pocholo, a friend of Raymond’s, needed a lift to Cebu and caught a ride with us.  The six of us loaded the infamous red van and left at 7 AM on Thursday morning.  The road to the port in San Carlos normally takes 3.5 hours, but we chose to take a shortcut through the mountains on a winding two-lane road cut neatly into the side of a cliff.  Unfortunately, by the time we arrived at the port, the ferry was full.  The next ferry didn’t leave until 2:30 in the afternoon, so we drove three hours south along a coastal road to another port in Aclan, where the ferry leaves every hour and takes 30 minutes to cross.  Once on the other side, we had another three-hour trip back up north.  Twelve hours later, we arrived in Cebu City and checked into a hotel. [caption id="attachment_637" align="aligncenter" width="300" caption="Our route, highlighted by the black arrows"][/caption] (more…)

Travel and Culture

Another Trip

Capping off a marathon month of travel, I am spending the weekend in Cebu.  NWTF is rolling out Kiva in several of the Cebu branches and I am coming along to give a short presentation to the loan officers and branch manager on the history of Kiva, the mission, and Read more…

Microfinance

The Journalist

This week Negros Women for Tomorrow published it’s first newsletter in several years.  I know the girl putting it together, so she gave me 250 words (shortened first to 150, then 100).  Here it is: Over the past year, Kiva has partnered with MFIs like NWTF across the Philippines to Read more…