Participating in the Dialogue: The Role of Microfinance Critics (Part 2)

24 February 2011 at 09:00 4 comments

A few months ago, I wrote a blog post that drew on my experiences as a Kiva Fellow in Bolivia to discuss two points of criticism about microfinance, specifically from Aaron Ausland’s Huffington Post article, “How Microfinance Lost its Soul”. In this second installment, I will attempt to do the same, focusing on the portrayal of microfinance put forth by Tom Heinemann’s controversial documentary, The Micro Debt.

Supporters of microfinance seem to agree on two things about the film The Micro Debt:

(1) The discussion surrounding microfinance and its perceived and real impact, including the occurrence of irresponsible lending and over indebting clients, is an important one and should be given a prominent role;

(2) The documentary regrettably provides an extremely one-sided portrayal of international microfinance, largely ignoring how it actually works and the problems currently facing the industry, in favor of a more sensational and dramatic story.

Rather than responding point-by-point to the claims made by Heinemann, as a number of experts have already done (see below), I will discuss the work of one of Kiva’s field partners, in the hope that an example of responsible lending will provide a more varied and complete picture of the worldwide reality of microfinance.

Presenting a Kiva Field Partner, CIDRE

CIDRE provides funding for small business owners working in both services and production, but the majority of the loans they distribute are within the farming and livestock sector. They offer a wide variety of products tailored to their clients’ needs in an effort to fulfill their mission statement, which is to contribute to the sustainable development of small agricultural producers and micro-and small businesses in rural and peri-urban areas.

Because CIDRE’s work is heavily focused on the area of dairy production, they have acquired a knowledge and understanding of the sector that allows them to effectively serve dairy farmers that have historically been excluded from financial services. The institution knows, for example, what a head of cattle costs, and they are easily able to assess how much milk their individual clients can produce, based on how many heads of cattle they have, the quality of machinery, etc. For this reason, they can confidently and responsibly lend to a dairy farmer using only the client’s cows as collateral, whereas rivaling financial institutions might require a house or automobile as collateral.

The area outside of Cochabamba, where CIDRE does most of its lending to dairy farmers.

CIDRE’s loan officers have observed that farmers are able to more efficiently produce better quality milk subsequent to taking out a loan. CIDRE witnesses its clients working harder and become more responsible because they take their debt very seriously and want to pay it off on time. People are also empowered by the fact that they are now worthy of credit and that there is someone looking out for their interests.

After visiting with the Kiva client, loan officer Veronica Aponte decided to stop by another client's home to say "hello", since we were in the area.

In even more remote areas of the department of Cochabamba, CIDRE works hard to bring financial services to a number of small villages through their regional offices. One of their 11 regional offices is located in Colomi, where clients’ main activity is growing and selling crops such as potatoes and beans. Since 2002, two of CIDRE’s loan officers have been based in the Colomi office and spend their days traveling great distances to visit with borrowers in the region, saving the clients the time and expense involved with traveling far to make payments on their loan.

The Discourse – Is all Criticism Productive?

I agree with the microfinance critics that relying only on anecdotal success stories perpetuated within the international development community give a false impression of microfinance, its challenges and its limitations. However, I also question the constructiveness of a movie that combines a montage of heart wrenching stories of failure (presumably caused by microfinance) with a personal attack on Grameen Bank founder Mohammed Yunus.

Tom Heinemann’s provides an extreme picture of the dangers of microfinance, leaving us to believe that most, if not all, MFI’s operate in the exact same way, and that they are completely unconcerned about the welfare of their clients. My experience in the field, particularly the time spent in CIDRE’s office, leaves me with a different impression entirely. CIDRE, by knowing and understanding its clients and the details of their business activities, is consistently (and responsibly) able to provide poor dairy farmers in the region surrounding Cochabamba with financial services, something that has been in demand for years, as evidenced by a high rate of application and a consistently high rate of repayment.

The hype that promotes microfinance as a silver bullet of international development is dangerous, but equally dangerous is the backlash to the hype – the documentary that attempts to tear down years of work towards building strong, sustainable financial institutions for the world’s poor. Improvements and advancements within the field of microfinance will happen as a result of an increasingly complete understanding of the realities in the field, and most importantly, the realities facing clients. So while I can appreciate the conversation initiated by Tom Heinemann, I hope anyone interested in gaining a more accurate understanding of microfinance will dig deeper for a more complete picture.

The Professionals Respond to Tom Heinemann

Read David Roodman’s responses to the documentary here and here.

Read Kathleen Odell’s reply, posted on the Grameen Foundation’s Blog here.

To search for currently fundraising CIDRE loans on Kiva, click here.

Julie Shea has just finished a 7-month fellowship with Kiva and while she acknowledges that microfinance is not a panacea for poverty alleviation, she remains a strong believer in the importance of building effective financial institutions for people historically excluded from them.

 

Entry filed under: blogsherpa, Bolivia, CIDRE, KF13 (Kiva Fellows 13th Class). Tags: , , , , , , .

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4 Comments

  • 1. claravisser  |  28 February 2011 at 05:29

    Alexis, good blog! I recognize what you are writing about microfinance in Bolivia. I meet clients who are extremely thankful for their loan from the MFI IMPRO. Not only on the country side (they improve their quality of live tremendously with the loans for cows), but als in La Paz (because of low interests, fast supply of money, staff that understand the clients).

    There is over indeptedness, but when the microfinance institutions take into consideration how much a client can pay every month, you can handle it responsibly. At least, so is IMPRO working, visiting clients at their homes and analysing their economic and social situation. However, I can imagine that some institutions don’t work as thorough as IMPRO and CIDRE…

    Have a safe flight back home, it was nice meeting you!

  • […] Participating in the Dialogue: The Role of Microfinance Critics (Part 2) Country: Bolivia / Fellow: Julie Shea (KF13) Julie responds to some of the controversial statements being made about microfinance with the story of CIDRE, the microfinance institution she’s been working with in Bolivia, and a round-up of related links. […]

  • 3. Alexis Ditkowsky  |  26 February 2011 at 09:31

    Thanks so much for your well-considered post, Julie. With your thoughtful tone, you demonstrate how productive and informative conversations about microfinance can be.

  • 4. milford bateman  |  24 February 2011 at 21:22

    Julie

    I read your response to Tom Heinemann’s documentary with much dismay because you provide an extremely uninformed and simplistic picture of the reality and impact of microfinance. You also attack Tom Heinemann’s recent documentary on really quite silly grounds. I know you are quite new to microfinance, but you still owe it to your Kiva Fellows and other colleagues, and to the wider development community, to be fair and unbiased, and not simply use the high-profile Kiva website to produce a piece of PR fluff masquerading as a genuine analysis of important microfinance issues.

    First, you expressed real disdain at what you say is the one-sided nature of Tom Heinemann’s documentary. It seems like you really hate documentaries that take a particular stance with regard to microfinance. However, I googled the more than 40 propaganda documentaries produced or funded by the main microfinance lobbying bodies, and I found no evidence that you, or indeed anyone else now criticising Tom Heinemann, has ever expressed any problems whatsoever with any of these extremely one-sided and often laughably biased documentaries. Moreover, you quite unfairly failed to mention in your own posting that, unlike in the case of Tom Heinemann’s documentary, which allowed the Grameen Foundation’s Alex Counts to present the positive side, none of these microfinance industry supported documentaries allowed any dissenting voices to appear on camera, nor did any of them even raise the idea that there might actually be a downside to microfinance.

    Second, you provide ‘evidence’ from Bolivia of one program you are familiar with that suggests to you good things are happening. This is very flimsy evidence indeed. You did not provide any evidence for the longer term impact of this program, or other microfinance programs, which is really what counts. On this, you might have pointed out instead that Bolivia has failed to develop or reduce poverty under the very extensive microfinance sector that has existed since the 1990s, and that because of this many in the government of Evo Morales, and wider afield (including myself), are of the firm belief that microfinance has actually undermined the effort to address poverty and underdevelopment in Bolivia this last twenty years or so. You might have mentioned also that the new Morales government has been shaking things up since 2006, including by setting up a new small business bank and by engaging with the main microfinance institutions to negotiate lower interest rates and more support for productive businesses and not just consumer loans. These initiatives hardly suggest that a successful model of poverty reduction via microfinance has been in place for all these years.

    Third, you quote David Roodman and Kathleen Odell approvingly without mentioning that both routinely downplay or ignore much of the evidence that microfinance is seriously problematic. Kathleen Odell’s 2010 review of microfinance evaluations on behalf of the Grameen Foundation was recently quite devastatingly exposed by Dr Richard Palmer-Jones (on David Roodman’s website) as very seriously biased in favor of a generating a positive outcome. In the case of David, it has often been pointed out (most recently by Dr Maren Duvendack, again on David’s own website) that he discounts the results of his OWN work – notably his destruction, with Jonathan Morduch, of Pitt and Khandher’s positive results from the 1990s – such is his firm belief in the value of microfinance. It was therefore only to be expected that, almost whatever the evidence presented by Tom Heinemann, both would reflexively diss a(ny) documentary critical of microfinance. Could you not therefore have also quoted the views of the many individuals who have viewed the documentary and who have reacted positively, and who are a little less intimate with the microfinance industry and its key figures than either Kathleen or David?

    Like you I believe that microfinance needs much greater independent study to ascertain its positive and its negative aspects. But seriously unfair and ill-informed postings such as this posting should really be avoided if we are not to add to the already huge amount of misinformation on the topic.

    Milford Bateman


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