The Solutions to Poverty and Unemployment Will Look Something Like This: An Interview with Rachel Cook

Tom Van Dyke says:

Microlending is attractive on all levels, principle, the real world, empowering women. Kiva got a $5M grant from an eBay founder, which takes some of the pressure of self-sustainability off.

There’s nothing not to like about the concept, from left, right, libertarian, you name it. But like most two-fers, things too good to be true often are. And Kiva has just gone for the lefty trifecta, with “green” loans, as if Job One weren’t difficult enough.

How many lefties does it take to change a light bulb? At least two–one to do it and one to make a documentary about it.

A doc has already been made by “Beyond Good Intentions” on microlending. Kiva in particular took it in its well-intentioned shorts a bit.

The ninth episode in the Beyond Good Intentions series will likely be one of the more controversial ones because it not only takes a critical look at the realities of micro-lending (which seems to have gained saintly status in the development field in recent years), but it does so by questioning the impact of one of the world’s favorite organizations: Kiva. I should start by prefacing my comments with the fact that I have total respect and admiration for the hard work and passion that the entire Kiva team has invested in their work. There are undoubtedly numerous success stories. But what I saw in the field in both Cambodia and Mozambique left much to be desired.

However, I soon discovered that micro-lending is not the panacea to poverty that the world wants to believe. I met with countless Kiva loan recipients in Cambodia and Mozambique and while several of them had been able to successfully repay their loans, none of them had succeeded at pulling themselves out of poverty. Some of the reasons for this fact (which I discuss in Episode 9) include:

http://www.socialedge.org/blogs/beyond-good-intentions/archive/2009/05/25/micro-lending

I’m all for the idea [Nobel Prize!], but reality has been a bit of a wet blanket. Best to think of it as similar to but better than straight charity even if not self-sufficient.

An underlying issue in the microfinance discourse is the question of sustainable action. Despite the business model of MFIs and awareness of “best practices,” nearly all programs remain substantially subsidized. According to a UN study, only 10% of micro-lending organizations are self-sufficient.(4) The majority rely on donations and subsidies to stay in business which endangers the long-term viability of such organizations. This is especially true for programs with explicitly social objectives. For example, a recent survey shows that the programs that target the poorest borrowers generate revenues sufficient to cover just 70% of their full costs.Report

Tom Van Dyke says:

Mr. Weinstein, I have reservations about microfinance, not necessarily criticisms. But it’s plain that there are many who are ideologically invested in the concept, to the point of investing their time and vocation in it. Their willingness to question their path is likely less open-minded than those of us with a passing interest.

The ultra-high interest rates were my red flag. How do they differ from the paycheck loans the late Gary Coleman was pushing, or from the loanshark except for less violence at default? [And even the Nobel-winning Grameen Bank was alleged to have used strong-arm tactics for defaulters.]

There’s no question this can be a good thing, at the small scale, the person-to-person level: the problem may be when the concept is put on a large scale and the “human touch” is obviated. How to tell the good risks from bad, how to keep the corrupt out.

Then there’s the question of effectiveness: they do good, but how much good? Is opening a corner store [sari-sari] just a warm & fuzzy attempt to replace genuine development, of the kind that is icky and dirty and un-eco-friendly but creates genuine wealth, not just a better grade of subsistence?

I didn’t merely drag 2 google results in; there were many more I didn’t address. I used SKS that you mentioned and the Nobel Prize-winning bank; finding their current problems only took hitting “news” on Google: what’s happening now, today. [The Grameen story came through WikiLeaks.]

I’m not in the mood for yet another epistemological war. David Roodman is googlable and has his hands full on that front. I pity anyone who goes up against the shibboleths of the establishment: they don’t want to hear it.

http://blogs.cgdev.org/open_book/2011/08/i-failed-to-seriously-consider-the-limitations-of-microfinance-as-a-poverty-reduction-approach.php

This is a forum, Josh. Your position is certainly not going to budge: you’re invested up to the eyeballs in it. I’ve been curious about what seemed to be a magic bullet, and am sharing what I ran across with the readers here. If they’re like me, they were probably unaware that microcredit has much in the way of problems atall, or that its gross effectiveness is under challenge by both academics and people on the ground like the [sadly ignored] “Andy Smith” or “Beyond Good Intentions,” who went in as advocates and expected to find much more positive results that they did.

Is microfinance better than nothing? Sure, stipulated. Is it as good as genuine development? Doubtful, at this point in epistemological time.Report