2009: The Year Microfinance Died
Raderstrong, J.

If microfinance was born in 1976 with Muhammad Yunus' US$27 loan, 2009 was the year it died. Ok, not really, but it did catch a lot of flak. Once heralded by some as a ‘silver bullet’ to end poverty, this year people got real about what microfinance is and isn't and owned up to the limitations.

This reality check was fueled mostly by the release of several studies on microfinance, which used randomized controlled trials for the first time to measure microfinance's impact on its clients. The results were not so hot; with no study illustrating the transformative change people expected.

Then, not shortly after these studies were released, Kiva took a fall from grace (at least in the blogosphere), admitting that its microfinance loans did not actually create a ‘person to person’ connection. Since then, GiveWell, a powerhouse of a charity evaluator, has unrelentingly pounded against the microfinance ivory tower and recently discouraged people from donating to Kiva and other US microfinance charities, including the Noble-Peace-Prize affiliated Grameen Foundation.

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06 Jan 2010

Microfinance is still alive

Microfinance is certainly not dead – it is very much alive and working for millions of poor people around the world. We welcome the increased scrutiny of the microfinance industry over the past year. It gives us the opportunity to more rigorously demonstrate how we are helping to improve the lives of the people we serve. Grameen Foundation has been at the forefront of industry efforts to do just that using tools like the Progress out of Poverty Index™ (PPI™) which helps institutions objectively measure their outreach to poor people, monitor changes in their clients’ economic well-being and improve the effectiveness of their programs and services. Developed in collaboration with the Consultative Group to Assist the Poor (CGAP), Ford Foundation and Microfinance Risk Management, L.L.C., the PPI is already available for 23 countries and has been adopted by other microfinance networks and social investors, for example, Oikocredit. The recent studies at MIT and Yale, while calling into question some aspects of microfinance’s effectiveness, also contained some positive results that have not been as widely reported. For example, the India study done by MIT notes that microcredit did lead to reduced spending on consumptive items in favor of durable goods that are used in operating micro-businesses, and allowed people to overcome the barriers of start-up costs. The study also acknowledges that while there was only a modest impact over the short time period of the study, microcredit may help reduce poverty over a longer time period. In addition, as several industry leaders noted in a recent article in Knowledge@Wharton, the non-financial benefits like health, education and women’s empowerment, cannot be measured as easily over an 18-month period. No single assessment can comprehensively capture microfinance’s overall effectiveness as most microfinance institutions serve their clients differently. When the products and services offered by MFIs are well-designed, appropriate for clients, and delivered effectively, microfinance can contribute greatly to improving the lives of poor people around the world.

Camilla Nestor Grameen Foundation United States

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