Last updated on January 10, 2011
Given the popularity of last week’s posts on microfinance (see here and here), I continue blogging about the topic this week and the next.
This week, however, I am blogging about microfinance as seen from within the industry. As such, I am blogging the five-point response a friend of my wife’s and mine — whom I 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 very best universities for both his undergraduate and subsequent professional degrees. More importantly, Chad has traveled extensively to the field to meet with stakeholders among the microfinance supply chain. See here for his first point.
Chad’s second point was:
“For those saying they’ve ‘proven’ that microfinance is ineffective, I would like to know how much time those people have spent in the field. More importantly, what timeframe did they use for their research? People in poverty didn’t get there in one or two years; it will take more than a one- or two-year time period to see the effectiveness of microfinance. More like one or two generations. Unfortunately, the pressure to produce papers, to do research that will land tenure, that will remain of interest to receive funding, etc. prevent this type of examination from really occurring.”
Most serious empirical researchers in development microeconomics have spent some time in the field, usually in graduate school given teaching requirements once on the tenure track. It is true, however, that almost no researcher spends enough time in the field. This is especially true when comparing most social scientists to anthropologists, who sometimes spend years in the field for a single ethnographic study.
Chad makes a great point which development economist are just starting to recognize now regarding the time it may take for a treatment effect to be felt. A new working paper by David McKenzie entitled “Beyond Baseline and Follow-Up: The Case for More T in Experiments” came to my attention a few weeks ago which shows the way forward on this front.
I also think Chad is right regarding the marginal (“Does microfinance reduce poverty?”) vs. inframarginal (“Does microfinance make poor people less poor?”) question, which makes the context crucially important.
The economists who specialize in the measurement of poverty use several measure to describe poverty. One of those is the head count — how many people are below the poverty line? — and another, very different one is the depth of poverty — how far below the poverty line is the average poor person? In this sense, one should ask whether microfinance makes people better off rather than ask whether microfinance reduces poverty.