FINCA - Small loans, big changes

A Congolese Village Bank in Lumbumbashi

I’m back from a regional meeting of FINCA Africa in Lumbumbashi (say it with me), Democratic Republic of the Congo, during which I was able to meet and interview about a dozen clients. Stay tuned for a posting of this, hopefully next week.

In the meantime, I want to return to my critique of David Roodman’s “Due Diligence”, and thank him for his response which you may find on David Roodman’s Open Blog on Microfinance Wid all due respect, as Tony Soprano would say, I remain unconvinced of David’s conclusion that the impact on global poverty of my 40 year career in microfinance has been zero. It is as if I had never lived! Now, I was of course foolhardy to try to engage David — a econometric Goliath – on his own terrain. I recall the precise moment, as a Master’s Degree candidate at the U of Wisconsin, when I realized the statistical life was not for me. It was Euler’s Theorum that did me in. I canvassed the campus in vain for someone who could explain to me, in plain English, what was meant by “For homogenous functions there is a definite relationship between the values of the function and the values of its partial derivatives.” Cool! But, like, can you use that to launch a rocket? So I guess at this point the only way I will get my Doctorate is if some university bestows an Honorary Degree on me. (Any takers? No?) But not to beat a Hypothetical Horse, I think David, in his faith in the power of numbers, has strayed too far from the path of Common Sense. Example: If, as David concludes, there is value to be found in the creation of an industry that has corrrected — for many millions of people — the “market failure” of financial systems in Developing Countries, is it logical to then conclude that the impact on global poverty of this gargantuan investment has been zero?
Are we to believe that joining millions of people who earn their living each day in the informal sector, and who previously had no access to credit or savings services, and now do, are not materially better of as a result of it? I think these two conclusions marry up like drunkards in a Las Vegas wedding. Let’s get them across the border to Mexico for an annulment.

Let me conclude this post with two stories. Now, I know David hates stories, but I venture to say he might like one of them. The first was a woman who has been working with FINCA Congo for the past five years. She initially sold shoes, and then, with the income she earned from that and subsequent FINCA loans, she was able to open a second business selling groceries in her home. When I asked her how she rated FINCA’s service, fishing for an answer as to how efficient, responsive, friendly, etc our staff was, she replied: “FINCA has lifted me out of misery and given me my independence.” Wow, sounds suspiciously like empowerment. David would say “No causality!” Rupert would say “Hey,listen to the woman! Maybe she’s not making it up!”

The second story comes from a village bank I met with. I asked the group of women which service they valued most, access to loans or our savings accounts. Again, their answer surprised me: “Savings,” they said in chorus. Why? “Because it is our money.”

Over to you, David.

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Comments

There are 10 comments on “More on the Book of David (Roodman)”:

  • milford bateman on May 4th, 2012 at 9:59 pm said:

    Mr Schofield

    I think its not just econometrics you seem to have problems grasping, but basic economics and logic too.

    By your impeccable logic, if I go to Caesars Palace in Las Vegas and I bump into a couple of jackpot winners – say, poor people who used their scarce funds to get try to hit it big just once in order to escape a life of poverty – then do I find that these success stories are critically important, and do I then make the leap to conclude that gambling must then be having a positive impact on poverty? Of course not! For other obvious reasons (not least the huge profits made in the typical casino), and even though we find some individual success stories, we know for sure that the NET impact of gambling on poverty is always negative.

    Other than to convince those, like yourself, who desperately want to be convinced that microcredit has had a positive impact on the local economy all these years, pointing to a handful of success stories proves absolutely nothing. You can’t just fixate on a few success stories and ignore all the neutrals and the failures, and so also the crucial opportunity costs (what society could have done differently with the microcredit funds). You really do need to look at the NET impact of microcredit at the community level to see if it is having a positive, neutral or negative impact. David is fundamentally correct to claim that the evidence shows that microcredit has historically had no net impact whatsoever on poverty. Better just get over it.



  • milford bateman on May 4th, 2012 at 9:59 pm said:

    Mr Schofield

    I think its not just econometrics you seem to have problems grasping, but basic economics and logic too.

    By your impeccable logic, if I go to Caesars Palace in Las Vegas and I bump into a couple of jackpot winners – say, poor people who used their scarce funds to get try to hit it big just once in order to escape a life of poverty – then do I find that these success stories are critically important, and do I then make the leap to conclude that gambling must then be having a positive impact on poverty? Of course not! For other obvious reasons (not least the huge profits made in the typical casino), and even though we find some individual success stories, we know for sure that the NET impact of gambling on poverty is always negative.

    Other than to convince those, like yourself, who desperately want to be convinced that microcredit has had a positive impact on the local economy all these years, pointing to a handful of success stories proves absolutely nothing. You can’t just fixate on a few success stories and ignore all the neutrals and the failures, and so also the crucial opportunity costs (what society could have done differently with the microcredit funds). You really do need to look at the NET impact of microcredit at the community level to see if it is having a positive, neutral or negative impact. David is fundamentally correct to claim that the evidence shows that microcredit has historically had no net impact whatsoever on poverty. Better just get over it.



  • Paul Rippey on May 5th, 2012 at 8:30 am said:

    I found the last paragraph, when you say you are surprised that poor people say they value savings more than credit, deeply depressing. It’s depressing that a prominent person in financial services for the poor would be “surprised”, in 2012, that poor people overwhelmingly are looking for savings in all its forms, often especially commitment savings of some kind, more than credit.

    However, let me not be self-righteous here. I distributed micro loans for a a long time before I really asked people what they wanted, and many of us are guilty of paying more attention to the microcredit juggernaut than to the people we purport to serve. As part of my penance, I helped start savings-revolution dot org, which I hope you lenders will check out.



  • rupertscofield on May 5th, 2012 at 3:36 pm said:

    Good to hear from you, Paul, and glad to see you are still a playah. What surprised was that, given that Congo is such a relatively undeserved market, and that money lenders charge 34% per month for loans from $14 to $100, that the fact that FINCA DRC charges a tenth of that rate was not the primary reason we were attracting clients. But it’s all good: FINCA’s goal has always been to help our clients grow their own capital while making credit available to those who need it.



  • rupertscofield on May 5th, 2012 at 3:49 pm said:

    Ah, Milford, I was hoping to flush you out at some point. And glad to hear that, instead of comparing microfinance to slinging heroin, it’s now gambling. We’re making progress! But, sorry, you will never convince me that over 150 poor families around the world with microloans are acting against their best interests, and that we pioneers of the movement were victims of mass delusion (or deception) when we saw people leveraging themselves out of poverty through injections of small amounts of capital into environments where previously only the wealthy had access to it. And, believe it or not, donors were also not stupid or tricked into financing it: they put money into because it worked like no other intervenction at the time. This does not mean it is not also true that in saturated markets, where too many microentrepreneurs compete for too few customers, their margins fall to the point where microcredit is not a good investment for them. And we know the bad things that happen when poor people get over indebted. But to conclude as you do that because some MFIs behave irresponsibly we should dismantle the microfinance industry is like saying we should abolish all banks because Lehman Brothers and others misbehaved and created a global financial crisis. But maybe you would say that? And replace them with credit unions?



  • Paul Rippey on May 6th, 2012 at 6:25 pm said:

    Thanks Rupert. That’s good to hear.

    Savings for all, credit for some!

    Stay well,
    Paul



  • milford bateman on May 6th, 2012 at 9:44 pm said:

    Yes, ‘victims of mass delusion’ pretty much sums it up nicely, as I said just recently using the same title…..

    http://column.global-labour-university.org/2012/01/microfinance-delusion.html

    And because you seem to like misrepresenting my views, I guess it’s because you can’t respond otherwise, let me clarify: dismantling support for the microfinance industry is NOT at all like saying that we need to abolish banks, but like saying that we need to abolish all banks that operate like Lehmann Brothers (which is to say most banks on Wall Street). Can you not see the difference?



  • David Roodman on May 8th, 2012 at 9:05 pm said:

    Back at you, Rupert:
    http://blogs.cgdev.org/open_book/2012/05/ripost-to-rupert.php

    I think in your response to Milford, you got at what is probably your real core argument (against me): if 150 million voluntarily partake, how can the movement to build this industry be bad? I do think that’s an argument worth taking seriously because it’s really about respecting the judgment of 150 million people whose lives I hardly understand. Still there is the problem that credit has a certain addictive character, and that human judgment is fallible. I assume the microcredit industry hasn’t caught up with the tobacco industry in number of customers, if you take my point.

    I’m just trying to say that it’s a serious argument but not for me a case-closer.

    –David



  • Rupert Scofield on May 12th, 2012 at 1:14 pm said:

    Oh, so you admit that not all banks should be abolished. So would you go so far as to say that not all microfinance banks should be abolished, but only those who behave like SKS in Andar Pradesh, irresponsibly pouring out loans indiscriminately and over indebting clients in a mad race for profit? And that those MFIs that behave responsibly, provide useful services like savings, loans, remittances and microinsurance at a reasonable cost and taking care to understand their clients capacity to repay should escape Bateman’s indiscriminating, ideological scythe.

    Oh, my. I think I win this round. Surely, you noticed?.



  • Daniel Green on May 14th, 2012 at 11:17 am said:

    Point- Scofield (note the lack of “h” in his name, Mr. Bateman). While Mr. Bateman certainly cites compelling research in his article, I fear that the passion with which he and others slam the industry will result in throwing the proverbial baby out with the bathwater.

    Has the 40-year love affair with microcredit gone too far? Probably (judging by recent events in India etc.). Does this trend negate the power of microfinance? I think not.

    I think your critique, Mr. Bateman, would be more effective if you more clearly distinguish between the failures of microcredit vs microfinance as a whole. Responsible deposit taking institutions and savings-led organizations make up much of microfinance, yet you don’t seem to have a problem with them. Or do you….?

    – DG



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