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

Christopher Carr

Christopher Carr does stuff and writes about stuff.

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42 Responses

  1. 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.

    I embarked on my filmmaking expedition feeling quite excited about the sudden explosion of micro-lending opportunities around the world. What could be bad about people having the chance to pull themselves out of poverty by taking out loans and starting their own initiatives? It definitely sounded like a step up from the charity model in the way it embraced the power of entrepreneurship and gave recipients a sense of control and dignity in the process.

    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:

    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

    • Christopher Carr in reply to Tom Van Dyke says:

      Tom, you forgot the third lefty to write a blog post about the documentary about screwing in the lightbulb.

      Otherwise, I think you raise some good points.Report

      • Got me, Mr. Carr. There’s a structural nuance @ play here that may be overlooked: The idea is dreamy, and even though it’s in the service of free enterprise, it’s not capitalism.

        The money-givers are lenders, not investors. The money is also lent at usurious, loan-shark rates, the only difference being Kiva won’t break your legs if you default.

        But we’re into another [righteous] complaint from the left, about lenders putting borrowers in hock often beyond hope of recovery.

        There are no easy, two-fer or three-fer ideological “win-win-win” paths. Which is really more exploitative, the lender who expects to be paid in full once [with goodly interest], or the investor who expects a piece of the action in perpetuity but who assumes the lion’s share of the financial risk at first?

        A delineation of capitalism and finance we often blur, I think.Report

    • Hey Tom – I disagree with your points. The 10% of MFIs that are financially-sustainable account for most of the microfinance clients in the world. Of the top 50, several are publicly-traded (SKS, Compartamos) and most of the rest (ASA, CARD Bank, BRAC, Kashf, etc.) are profitable and still focused on people living below $4 a day PPP. The interest seems usurious, but compared to real money-lenders (the actual alternative to microfinance), which charge something called a 5/6 ($5 lent, $6 paid – or a daily rate of 20%), it is a pittance. Most microfinance businesses are high-turnover – buy-sell, stores, transportation, etc. – with an average return of 117% to 847% (I’m only dropping numbers because you did first). This is just the loan side of the business – it doesn’t take into account that MFIs offer savings accounts, insurance, and other financial products. Dean Karlan and David Roodman have cast some doubt on the scale of microfinance’s impact, but their findings have been misconstrued to say that microfinance is ineffective.

      Your basic premise is incorrect unfortunately. Microfinance can, and, in many cases, is both profitable and beneficial. I agree that, in a lot of situations, capitalism and the social sector do not jive well, but remember – kiva is a non-profit. It offers 0% interest loans to drive down the cost of capital for MFIs, which have high operating costs because of the small loan size. Kiva wears its identity on its sleeve, but it seems to be fashionable to say that this is somehow not “real capitalism,” even though it doesn’t pretend to be. BRAC, Compartamos, and SKS, on the other hand, are real capitalism, and they are achieving the win-win-win that those “lefties” pine for.Report

      • Mr. Weinstein, you have a horse in this race, I don’t.

        I’m open to your arguments. I hope the idea does work. Most of what I reproduced here was from “Beyond Good Intentions,” who did their own feet-on-the-ground investigation/documentary. Your argument is more with them than me. I would appreciate some sort of links or references for your more pivotal assertions, though.

        As for what is “real capitalism,” and how it may apply here, the observation was my own, and not part of being “fashionable.” You seem to be a veteran of the wars about the concept and its viability, indicating that there is controversy, and that it certainly didn’t originate with me.Report

        • Christopher Carr in reply to Tom Van Dyke says:

          Tom, for the record I’ll state unequivocally that microfinance is an improvement over anything else we’ve got, even if it’s not perfect. Criticisms like those of “Beyond Good Intentions” should serve to tweak and qualify what is basically a solid model.

          I certainly prefer a world of microfinanciers to a world of missionaries, resource extractors, World Banks, petty dictators, or nation builders, even if that world is flawed.Report

          • Mr. Carr, I remain skeptical of magic bullets, is all. SKS [heralded above] is on the ropes: “SKS is a case of extreme optimism turning to extreme pessimism.”


            I’d like a peek @ Kiva’s books, whether it has an ideological allergy to true capitalism, and/or an addiction to political correctness [“green” loans] that may defeat its primary purpose.

            Is it better to give a man [woman!] a fishing pole than a fish? That seems to be common sense, hence microfinance is self-evidently superior to mere relief, even if we just bite the bullet and call it charity, and not a self-sustainable scheme.

            This is all new to me, spending a few hrs poking through the Google entrails of the issue. Nobel Prize-winner Mohammad Yunus is in the news just today, things perhaps not going so sparkling clean for him and his Grameen Bank:

            When Verveer on Nov 11 noted Grameen’s good work and Yunus’ plans to start a nursing school in Bangladesh, the prime minister said her government was ready to help anyone for the cause.

            The foreign minister had a litany of complaints against Yunus in another meeting the next day.

            She complained about the high interest rates Grameen Bank charges its clients and alleged that the bank used “vicious practices” to recruit clients and obtain loan payments.

            On the same day, ambassadors Verveer and Moriarty relayed the government complaints to Yunus, ‘who said they echoed much of what he was hearing from his sources’.

            He disputed all the allegations, noting that Grameen had nearly 8 million borrowers and had disbursed $8 billion in loans since its inception, more than 95 percent of which had been repaid.

            He said he and Grameen Bank complied with all laws, including annual audits, but he was ousted this year for that he had been re-appointed illegally.

            The dark underbelly of our better angels? Hell, I don’t know, but I’m not buying unreservedly the assertion that microfinance is in the clear as a “solid model” quite yet.Report

  2. Andy Smith says:

    “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.”

    That has been my experience in another Asian third world country, the Philippines. The economy is so bad there that even if people are given money to start businesses, they usually fail. A friend of mine over there started a business with more than $1000, and it flopped almost immediately because she could not make enough money to pay the $200 a month rent on the store/space. It didn’t help that there were very heavy rains for more than a month, during which time almost no customers showed up, but even when the weather improved, the business simply couldn’t sustain itself.

    Even the sustaining businesses I have seen have not been very successful. For example, a live-in store that provided food, basic shelter and maybe $100 a month income. Because so much work is required for so little income, the people frequently get discouraged and try to sell the business to start something else that will also fail.

    Corruption is also a major problem. Another friend tried to start a business involving jeepneys, a form of public transportation. The jeepneys have to be registered with the government, a process that takes a lot of time and money. There are people who offer to streamline the process, and turn out to be frauds who take the money and run. These people are especially active as agents who offer to find work abroad. I couldn’t guess at how many people have been defrauded by such schemes.

    I hear stories of how as little as $25 can change people’s lives, and all I can say is, that amount of money is a joke in the Philippines. Frequently, it doesn’t even make a significant dent in the money that most people owe chronically, money that has to be paid off before they can even think about accumulating money from a business.Report

    • Kim in reply to Andy Smith says:

      80% of First World businesses fail. Most people dont’ have what it takes to be businessmen, and one of the first indicators of that is how much debt they have (yeah, each person is a special snowflake, and there are reasonable reasons for debt, even chronic debt, sometimes).Report

  3. Andy – I lived in the Philippines too and worked for a microfinance institution there. Corruption is a problem, to be sure, and these loans aren’t going to allow someone to finance a business with the kind of revenue to get rich, but some of your points are wrong. First, $25 times 40 is $1,000, and that is more than enough to provide working capital for a sari-sari store, purchase a tricycle, or purchase inventory for a buy-and-sell business. Second, a lot of microfinance loans are used to smooth consumption, not necessarily invest in an existing business. Income is often sporadic and seasonal, so having consistent cash in is worth the interest on the loan. I think you are taking a couple of isolated examples and extrapolating conclusions which don’t jive with my experience there.Report

    • Andy Smith in reply to Josh Weinstein says:

      I know $1000 is enough to finance a sari-sari–I financed one– but my point was that $25 is not enough to finance anything. And as I pointed out, the income from that sari-sari is very small, very difficult to pay back the loan. Sure you can buy a tricycle, but how much income do you think these guys make?

      I have spent a lot of time over there and believe me I can give you dozens upon dozens of examples. There are some businesses that work, or have worked, e.g., internet cafes and cell phone shops, but they require more money and those areas are increasingly saturated.Report

  4. Andy Smith says:

    Obviously it also depends on how you define poverty. Most Americans would not regard living in a small, hot, noisy one-room shack with just enough money to eat, but not enough for extended education or the inevitable medical emergency, as being out of poverty. Most Filipinos manage to get that far, one way or another.Report

  5. James K says:

    It’s true that microlending isn’t a cure-all of poverty, but then nothing is. Given the track record of 3rd world development projects, the remarkable thing about microlending isn’t that it works brilliantly, but that it works at all.Report

      • Christopher Carr in reply to Tom Van Dyke says:

        Tom, I agree that publication of methods and raw data should be a requirement of academic publication. A citation of a published work that does not fully explicate its raw data and methods is nothing more than an appeal to authority.

        Not to make you into a straw man, but (as opposed to know-nothingism) I think the solution to this problem is to compel publication of methods and raw data or to give more intellectual weight to publications that include methods and raw data.Report

        • Kim in reply to Christopher Carr says:

          … a journal’s what, 100 pages? DNA would take up that with one study, I’m sure. It’s fine to say “yeah, you gotta be willing to share the raw data” but publish it? That’s just silly.Report

          • DensityDuck in reply to Kim says:

            How sad that we don’t have FTP sites or anything where we could make the data publicly available to anyone with internet access.Report

            • Kim in reply to DensityDuck says:

              DD, within reasonable limits. I do not mind having “you gotta be a research scientist” as a criterion, particularly when we’re passing around PHI.Report

              • DensityDuck in reply to Kim says:

                Right, because Lord only knows what those proles would get up to if we let them have the original data. Why, they might try to reproduce our research or something. Can’t be having with that.Report

          • Christopher Carr in reply to Kim says:

            Publication is the significant property, not publication in the printed pages of that particular journal. It is 2011. A link to online publication of data would be nice and easy enough to arrange. It’s ironic that you reference DNA, since the human genome data has been publicly available since The Human Genome project began.Report

            • Kim in reply to Christopher Carr says:

              how much data should someone be required to keep online? 1 Gigabyte? 1 Terabyte? 1 Petabyte?
              I ask because I’ve worked with data where a significant request would give you 100 gigabytes. I don’t know what the storage costs are for “online publication”, but I’m thinking they might be substantial.
              And you WOULD get your uni CS folks down on you if you just ftped from your computer.Report

              • DensityDuck in reply to Kim says:

                There’s a couple terabytes of storage space sitting on the shelf at the local commodity electronics store, and there are giant factories that churn out multiple terabytes every day, so don’t be all “wooo it’s too much” about data.Report

              • Kim in reply to DensityDuck says:

                … not the issue. we aren’t talking about you, the person who wants the data, paying $100 for the disk. we’re talking about someone making it publically available, presumably for anyone. which involves transportation costs, etc. If you were just saying “send me a few dvds”, that’s easy to quantify (not that the other one isn’t, i just can’t do it off the top of my head, which is why i’m asking)Report

              • DensityDuck in reply to Kim says:

                At no point did anyone suggest that the data ought to be free, or that the requestor should not bear the cost of transport.Report

              • Kim in reply to DensityDuck says:

                someone said publically available online. when have you had to pay for ftp costs?Report

              • DensityDuck in reply to DensityDuck says:

                “To get access to our FTP server, please Paypal $10 to climatechange@uea.eduReport

              • Christopher Carr in reply to Kim says:

                I don’t think there should be any official requirement. Publish as much as you like, but don’t expect me to accept your conclusions on your word alone.

                I’m not a computer scientist, but I’m having trouble conceptualizing a petabyte of data. How much is the human proteome? 100 gigs or so? I’d say it’d be worth a hundred gigs to have a human proteome in storage.Report

              • Kim in reply to Christopher Carr says:

                We’ve got a few petabytes right here at work. But most of it is pictures, or DNA, or other things that take a ton.
                Remember, when you’re comparing different people’s DNA to each other, looking for a particular genetic marker, you need ALL of the people’s DNA kept, not just one set. If you really want raw data.

                Personally, i think there are acceptable algorithms to process raw data into intelligible form, and when they don’t require human intervention, it is perfectly acceptable to only keep around the fourier-transformed MRI, for example.Report

              • Patrick Cahalan in reply to Christopher Carr says:

                If there was a requirement (say, a NSF actual guideline requirement) for data retention for federally funded projects, it would have to be very, very carefully written.

                There’s a guy in my building who routinely generates 500GB datasets. He then munges them, and reduces them to a statistical model. The source of the dataset is not static. He keeps his results, which are ~2GB a pop. He does not keep the original dataset, and in fact it’s impossible to replicate his research without them, because the sources change.

                He’s been doing this for about four years, running on a different data set about once every two weeks. 26 data sets per year, times four years, is 104 data sets at half-terabyte a pop, or 52 terabytes of data.

                If he had to keep 52 terabytes of data sitting around in redundant data storage, I would probably kill myself. Or him.

                > There’s a couple terabytes of storage
                > space sitting on the shelf at the local
                > commodity electronics store

                Duck, you have no idea what the cost of storage actually is. People think that a USB device == storage cannot work in my business without screwing a pooch every N weeks or so.

                Hard drives (aside from within 2 weeks out of the box) fail on a Poisson distribution. They are typically nowadays shipped with a 1 year warranty, whereas they used to have a 3 year warranty. This alone should tell you something about their reliability for long-term storage.

                If dude above had data retention requirements like you’re talking about, he’d have spent several thousand dollars on about 300 external hard drives of varying sizes. This being four years in, statistically speaking, at least 10 of those hard drives would have a problem, and it is a near-statistical certainty that some of them would have failed.

                Also, you’d be really hard-pressed to find the one you were looking for without a good data storage schema and a decently-maintained room to keep the physical inventory in order.

                Not to mention sticking this stuff on the web would be insanity. Just keeping it is flat-bar nuts.Report

              • Kim in reply to Patrick Cahalan says:

                … what’s he working on? (just curious..)Report

              • Patrick Cahalan in reply to Kim says:

                He’s analyzing data sets he gets under a qualified NDA. I’m not entirely certain I have the right to say 🙂

                Which is another issue. I may have access to source data for research, I don’t necessarily have publish rights for source data.

                But that’s a tangent.Report

              • DensityDuck in reply to Patrick Cahalan says:

                “There’s a guy in my building who routinely generates 500GB datasets.”

                …which are processed from some source, according to an algorithm, right?

                Your friend isn’t the only person in the world who makes lots of data. We do it, too. We don’t keep the intermediate work; we keep the inputs, and we keep the code, and we keep the summary of the results. If we actually need to reproduce something (and we have) then we run the process again from the get-go (which we’ve done, and it works.)

                I mean, let’s just be aware that you’re saying it’s okay for a scientist to stand up in public and say “I cannot reproduce this result by any means, but trust me when I tell you it’s correct”.Report

              • Kim in reply to DensityDuck says:

                … sounds like he’s doing some sort of industrial research. his sponsors may not care that it’s not reproducible.Report

              • Patrick Cahalan in reply to DensityDuck says:

                Just out of curiosity: do you keep the inputs if they’re readily available elsewhere?Report

        • DensityDuck in reply to Christopher Carr says:

          “Tom, I agree that publication of methods and raw data should be a requirement of academic publication. ”

          Tell that to the AGW zealots.Report

  6. Mr. Van Dyke,

    Thanks for the plug. a) the quote from Beyond Good Intentions did not post itself, so my argument is with the person implicitly endorsed them when he reproduced them on this blog, and b)there is certainly controversy, but mostly around models, delivery methods, and scale of impact, rather than the “viability of the concept”. Microfinance has a ways to go before it finds the right balance of impact and return, but MFIs will exist along a spectrum, rather than in one place. It isn’t perfect, and doesn’t claim to be. SKS is publicly-traded, which, in itself is controversial for an MFI, but, in all likelihood, it and other MFIs are victims of political pressure in a country where the poor have a disproportionate electoral influence (see citation below for this pivotal assertion).

    Your criticisms, however, seem to based on (partisan?) platitudes and your arguments consist of posting articles, quoting them at length, and then saying “its not me, its the article”. Sounds like spent a few hours looking through the entrails of Google to find two items casting doubt on two microfinance institutions. I did a google news search on Grameen Bank and had to go 4 pages in before I found the first semi-negative element article (which begins with the quote: “We never said microfinance was a silver bullet.” — Muhammad Yunus, founder, Grameen Bank). Right now Yunus has been thrown out and its become politicized, so who knows what will happen going forward.

    “Political correctness?” What is your problem man. Are you a climate change denier? I would say that what is more interesting about those “green loans” is less that they are not funding oil and more that they are funding energy, which is more interesting than your run-of-the-mill microfinance loan.

    Apologize for the tone in advance. This is something I feel strongly about – not microfinance itself, but rather non-nuanced arguments against microfinance.

    Here are my sources – dig in:

  7. 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.

    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

    • Kim in reply to Tom Van Dyke says:

      I like free loan societies, myself.Report

    • Andy Smith in reply to Tom Van Dyke says:

      “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.”

      I don’t want to be too hard on MF. I’m not an expert at it by any means. I do know the Philippines very well. I have tried to help people numerous times there, and some of the failures undoubtedly have resulted from the fact that I haven’t screened them carefully, made any attempt to identify the people most likely to benefit. I have a colleague who founded a group helping the rural poor in China (among others) who insists that most of their loans are getting paid off, and insists this is critical. Fair enough, you do have to put a lot of effort into focussing your efforts on where they are most likely to do good.

      But this is sort of my point. To have a significant effect on some country or society, “ordinary people”–as opposed to other poor who may be in an unusual position to take advantage of loans–need to benefit. From what I have seen–and I’m only talking about one country–creating a small nucleus of successful entrepreneurs will not trigger change in the rest of the population, because the latter is too large and growing too fast. In the years I have been going to the Philippines, I have seen the middle class, small as it is (and still poor by Western standards) grow significantly. The problem is that the underclass is growing even faster, and if anything, is even poorer than the before.Report

      • Mr. Smith, loan repayment as a useful, positive metric is also under question by Roodman on the academic side, and “Beyond Good Intentions” on the practical level.

        I can see your point [despair?] that microfinance, even if successful, cannot stem the tide of a growing underclass, but my reservations [and of those I’ve cited] haven’t even arrived at such a Square Two. Indeed, your point would lead to a certain nihilism, that a drop in the bucket can never fill the bucket, and so opening the door to doing nothing.

        Then the counterargument is that even if microfinance is only marginally effective, it’s still more worth doing than doing nothing, and that argument holds: it’s always better to do something than nothing. Weak tea, but the truth, at least enough truth to assuage its adherents/advocates.

        But leading us no closer to a sober-eyed assessment of its real value.Report

        • Christopher Carr in reply to Tom Van Dyke says:

          “Indeed, your point would lead to a certain nihilism, that a drop in the bucket can never fill the bucket, and so opening the door to doing nothing.” – I disagree. Microfinance is about changing the life of the person first. Development and the whole society becoming richer is a secondary concern. The distinction is like medicine vs. public health.Report

      • Christopher Carr in reply to Andy Smith says:

        Would you say microfinance is contributing in any way to income inequality?Report