Give a Loan, Plant a Tree, Paint a Life
In the past couple of weeks the microfinace debate has picked up again with the release of David Roodman's new book "Due Diligence: An Impertinent Inquiry into Microfinance". Even though I haven't yet read the book, I can almost surely assert that it is an excellent and well-researched work, as I have been following Mr. Roodman's Microfinance Open-Book blog for more than a year now.
One of the most heartbreaking things you can tell a microfinance practitioner goes something like this: "On current evidence, the best estimate of the average impact of microcredit on the poverty of clients is zero." (TIME Magazine) But this is exactly what David Roodman says. And this is ok, since he is a researcher and this is his job: to look for best practices in international development, criticize whenever he sees something wrong and start a dialogue, so that we - international development practitioners - see our mistakes and improve them.
As I said I have yet to read Due Diligence, nevertheless, I already know that I will be disagreeing with some of the book's main points. I, of course, am no expert as Mr. Roodman, but from what I have heard, read, and learnt in the last two years about microfinance and - most importantly - from my work at Color Me In! I would argue that microfinance does work when done right.
These women work to empower themselves and their families
"Done right" is, of course, an oversimplification of a very complicated process. For developmental workers like Sarah, CMI's Founder & Executive Director, this process includes years of hard-work on the ground, talking and listening to people, and genuine desire to help people. For people on the other end - microfinance clients - it's also a lot of hard work and a deliberate choice to empower him or herself instead of just living off donors' handouts for the rest of their lives.
So you see, for microfinance to work and stand up to it's main promise of lifting people out of poverty, there is no place for multi-million-dollar banks, corporate-heads, and traditional investors. When Muhammad Yunus gave his first microloan, he didn't envision Grameen Bank to be headquartered in one of Dhaka's skyscrapers. For if he did, that microloan would have never worked. When any company grows so rapidly, top-management always loses its connection with the customers. That's exactly what happenned with SKS Microfinance, Grameen, and Compartamos. And microfinance clients are no ordinary customers: they are much more vulnerable, limited with their resources, dependent on a microloan and in need of fair treatment. Many clients of big microfinance banks are not getting such treatment.
Because microfinance clients are often extremely-poor, giving them a loan can also be very risky (despite all the impressive rates of return reported by many MFIs). That is why loan officer to client connection is so important: microfinance agents cannot just go and handout microloans to any poor person in need. If there is no group lending scheme involved, officers have to access person's willingness and ability to start an income generating activity and repay the loan. In order to do this, a loan officer has to care about his work and about his/her clients. In case of huge MFIs it is often not the case.
To sum up, microfinance takes heart and hard work. Both on the part of a microfinance organization and a loan recipient. And in microfinance, as maybe nowhere else, small is big.