Given the popularity of last week’s posts on microfinance (see here and here), I thought I should continue blogging about the topic.
This week and the next, however, I will blog about microfinance as seen from within the industry. As such, I will be blogging the five-point response a friend of my wife’s and mine — whom I will refer to by the pseudonym “Chad” — has made to my previous two posts.
Chad works for a microfinance private equity firm and used to work for a leading online microfinance website. He has studied in the best universities for both his undergraduate and subsequent professional degrees. More importantly, Chad has traveled extensively to the field to meet with stakeholders along the microfinance supply chain.
Chad’s first point was:
“Much of the negative backlash towards microfinance was seeded by the very same publications who praised it several years ago. No one in the microfinance industry has ever claimed microfinance was the silver bullet to solving poverty. It was the papers who wrote all the glowing articles on microfinance that created this perception and who never did their homework in the first place. Now, they just are ‘reporting’ all the negativity without again first trying to understand the industry or understand the motivations of those trying to discredit microfinance, most which are politically or academically driven or both.”
My view is the media is merely reporting on how stakeholders feel at a given moment, but Chad is right that there probably was not enough emphasis put on the fact that microfinance was not a silver bullet that was going to eradicate poverty.
Is the opposition to microfinance politically driven? I am not an expert, but a lot of it certainly seems like it is. When Nicaraguan president Daniel Ortega encourages poor people not to repay their microloans, chances are he is doing it for political reasons. Likewise, the investigation into Grameen Bank’s affairs is perceived by many as retribution against Muhammad Yunus for saying he wanted to form his own political party. And in India, microlenders are perceived as competing against the government-created self-helf groups.
Is the opposition to microfinance academically driven? I am a bit more of an expert on this, and while I am probably not objective, I believe that anyone who can provide a solid answer to the question “Does microfinance help reduce poverty?,” no matter what the actual answer to the question is, will be recognized an authority on topic, with all the prestige that this entails.
Why does the answer not matter to an academic? Because whether microfinance helps reduce poverty is one of those research questions the answer to which does not matter much in terms of scientific journal publication. There are so many people arguing for and against the effectiveness of microfinance that any answer which establishes a causal link between microfinance and reduced poverty will be of interest to social scientists.
In addition, it is a lot more difficult to convincingly establish that something has no causal impact on something else than to establish that something does have a causal impact on something else. Because of the way hypothesis tests are set up in statistics — a null hypothesis usually tests an equality; in most cases, a null hypothesis tests that something is equal to zero, i.e., no impact — the bulk of the probability mass lies on not rejecting that hypothesis. In other words, rejecting the null — finding that something has an impact on something else — is a lot more convincing than not rejecting the null — finding that something does not have an impact on something else.
To make a long story short (“Too late!” some of you will say, echoing the cast of “Clue“), anyone who finds that microfinance has no impact on poverty will have to work extra hard and conduct a number of checks on their results if they want to convince anyone.