Friday, March 06, 2009

MIT development economists

Esther Duflo and Abhijit Banerjee are two star development economists from MIT. While the merits of microfinance are highly hyped, these two prefer rigorous science, particularly randomized experiments, before placing so much hope on the hype. Not that there's anything wrong with microfinance, but development fads come and go, sometimes before we even know if they were effective. Practitioners try one thing and move on without testing and knowing – that may be a paraphrase from one of the two, so I'll just give you their actual comments on microfinance from a recent interview at Poverty Action Lab:

ED: Look at microfinance. There is no evaluation yet of the impact of a microfinance loan – we have the first preliminary results ever of the impact of a plain vanilla, group lending microfinance model. That's it. It is not as if there have been mixed results before now. The studies don't exist. And that is microfinance, where there are already a hundred economists studying it.

AB: So, if microfinance suddenly doesn't make all babies do calculus by the age of five, it is deemed a failure. I think if we just accept that in the end a few things work and somehow that gives people the spirit or the enthusiasm or the hope to act a bit more and enable those things to accumulate on their own.

Thursday, March 05, 2009

Why Christian microfinance shouldn’t go away

Why should a nonprofit (or a Christian organization) use a business model like a bank instead of letting businesses do that? One of the trends in microfinance these days is big banks seeing the profitability of making big profits on small loans to the world's poor. Nonprofit microfinance institutions are in some places struggling to compete and stay in the market. Mexico is a great case study for big bank profits in an industry that has largely been nonprofit:

NY Times - Microfinance's Success Sets Off a Debate in Mexico

microLINKS - Mexican Microfinance: How Big Banks are Making Astronomical Profits

Why do nonprofits do microfinance? Easy. The world's poor are undercapitalized to grow their businesses and improve their welfare. Commercial banks do not make accessible loans to these poor entrepreneurs. Well, commercial banks used to not make those loans, but in some places they are beginning to see the profitability. There are a lot of poor consumers; it's a very big market. So now nonprofits are struggling to compete in some of these places where commercial banks are entering. The point is to bring in capital to stimulate the working economy of the world's poor, why does it matter if a nonprofit does it or a business does it? It still improves the lives of the poor.

Why should nonprofits compete to stay in the microfinance industry?

For one, and this is really my only one point, nonprofits can take risks that commercial banks cannot. Commercial banks enter and compete when the risks and rewards give them a green light, but when the light turns yellow, commercial banks turn back, when the light turns red, forget it. The poor are on their own. What happened to the banking industry that served poor business owners after civil war tore through Liberia? What happened to the banking industry that served poor business owners when a typhoon devastated Thailand?

It's a good thing that private sector industries bring services to the world's poor. But we cannot depend on the private sector when disaster happens. Nonprofit microfinance goes to the hard places, and it stays. If nonprofit institutions get competed out of the market, where will be the capacity when it is needed again?

Wednesday, March 04, 2009

What can I do for you?

The Prime Minister of Rwanda visited a small village near Kibungo. A true politician of the people, while visiting Kibungo the PM asked the people, sincerely:

"What can I do for you?"

Nothing, thank you. The group addressed by the PM was an active savings and credit association trained by our champions. They didn't need anything. Well, one thing … the group requested that the PM just keep police on the streets and they'd be happy.

This savings group was already doing for themselves. They are particularly disciplined in working each other's fields, they have saved consistently, and if one of them gets sick, there is another one assigned to take care of them. They are extremely well organized. This group works together so well and so diligently that they have earned themselves one full month of vacation each year! Do you take one full month of vacation? Nearby is the Akagera National Park and a beautiful lake with the President's vacation house (I am typing right now from across that very lake). I can clearly imagine group members taking a travel day to fish or lay out by the lake. They are meeting their own needs with time to spare, time to enjoy. They told the PM no thanks.

Tuesday, March 03, 2009

Teach a man to fish

Neal Baker introduced me to this modified saying:

Give a man a fish, he'll eat for a day. Teach a man to fish, he'll drink beer all day.

That's why it's better to teach a woman to fish, she'll feed her whole family.

In reality, our savings training teaches men and women to fish in terms of managing money and making it grow. We don't give out any fish, or money, but we teach to fish, or to manage money. Within the local church, our savings groups have also empowered men and women to become fishers of men and women. The church is drawing in community members who recognize the groups as more than pools of money. As a matter of fact, many community members might otherwise avoid a church scheme involving money/savings, but that's not what's happening, they are being drawn in because of how these groups are working.

Our groups' members are working in each other's fields, paying for each other's emergency needs, building houses and building relationships. That kind of success is visible, the fruits are good, the success inspiring.

It's hard to say that we just teach the very poor to save their own money, that we don't give them any food or money. But what we are teaching is how to manage their own resources. One day when we are gone, they will still be managing their own resources and making their money grow. Not only that, it's making their communities and families grow because it involves groups and it involves women.

Development theater

Bill Gates opened a jar of mosquitoes at a TED gathering and said, "Why should the poor be the only ones to get malaria?"

Foreign Policy: "misguided and somewhat tasteless attempt to make wealthy donors experience the realities of Third World poverty"
The World Economic Forum at Davos featured a "Refugee Run" so that millionaires can experience the horrors of fleeing violence and oppression.

Bill Easterly, NYU Economist: "Did the words 'insensitive,' 'dehumanizing,' or 'disrespectful' (not to mention 'ludicrous') ever come up in discussing the plans for 'Refugee Run'?"

It's difficult to respond to poverty and injustice. Give money, raise awareness … these are the approaches generally available to the concerned public. For those desperate for change, there is also desperation to tell the story in such a way to motivate much more money and much more awareness. I respect the need to do something that motivates change. When we know the pain in the world we must mourn it and strive to be peacemakers. But when our attempts become theatrical or consumerist, and the results are indeterminate, does our response respect the dignity of those who suffer?

Sunday, March 01, 2009

Paycheck to paycheck

Part of spreading savings and credit associations is convincing beggars and widows and prostitutes and street youth to save amounts near $0.25 per week … Convincing subsistence farmers that they can subsist on a little less right now so that they can invest in better crops some four months later. It's hard sometimes to cast this vision to the very poor, that they can live with more purpose and greater insurance and brighter future by saving now. The very poor, however, are not the only ones who lack the vision to save.

Consider these numbers from Harper's Index, December 2008:

Percentage of Americans who say they live "paycheck to paycheck": 47

Percentage of those making over $100,000 per year who say this: 21