The conversation around the future role of
microfinance has gained significant momentum in 2015. Through this blog,
we want to continue to participate in the conversation, especially in relation
to our blog from last March 2014.
Challenges are nothing new to the
microfinance industry; however the effort to maintain the confidence of funders
and investors may become more difficult with the release of recent
publications. At a meeting hosted by the
World Bank in early March, two articles addressed this challenge in response to
the Poverty Action Lab’s report, “Where Credit Is Due.” A particularly critical spin was put on that
discussion in a March 3rd Washington Post article by Chris Blattman, which concluded that
microfinance can be compared to the microwave oven; it doesn't make
people better off in ways that are easy to measure, but makes life a bit
more convenient, and it certainly doesn't warrant a Nobel Prize. A somewhat more constructive consideration of
the World Bank discussion came in a March 16th Devex
article by Claire Luke. Luke reports reactions to the recent publications
and research from a range of practitioners, including Grassroots’ Paul DiLeo, which
generally suggest that since microfinance offers an unrivaled, self-sustaining
platform for reaching hundreds of millions of poor families, there is a need
for research that helps practitioners improve their products and services
rather than studies seeking to generate eye-catching headlines that microcredit
“doesn't work.”
This
reaction was anticipated in a thoughtful March 3rd article
by Alex Counts of the Grameen Foundation, which systematically extracted
lessons gleaned from the last 30 years of the development of the microfinance
industry to help guide the recent surge of interest in “impact investing.” One of Counts’ points, which resonates in the
context of the Poverty Action Lab’s report, is that “it is important to remember
that few if any social innovations besides microfinance have proven capable of
reaching large scale and generating consistent profits.” Large scale and reliable
profitability should appeal to philanthropies and impact investors alike, and
should ensure a place in impact portfolios.
Other such platforms will likely emerge in the
future -- mobile technologies are garnering lots of enthusiasm at the moment --
but for now Grassroots believes that the practical challenge for those wanting
to deliver effective anti-poverty products and services is to combine the microfinance
experience, and the unique platform it has created at great cost and effort,
with the latest research to improve the efficacy and scale of efforts to
address the causes and consequences of poverty. We can use the experiences of the past 30
years in order to evaluate the best way forward, rather than allowing a focus on
what hasn't worked to lead us to a dead end.
One way that Grassroots is actively supporting
this approach is through its collaboration with Freedom from Hunger that utilizes
MFIs as platforms with the aim of improving women’s access to health services. Grassroots’ Impact First equity fund is
another initiative which aims to support MFIs that are using the latest
research to deliver meaningful results on both bottom lines. These engagements are among a newly
flourishing cohort of efforts that build on the unique accomplishments and
capabilities of microfinance rather than putting the majority of emphasis on
the shortcomings with the dead-end conclusion that microfinance simply doesn't
work. The original objective of alleviating poverty has not changed, but the
methodology needs to expand beyond microcredit to integrate health services and
access to energy among many others, and to increase the likelihood of success, this
agenda needs both the support and constructive engagement of researchers and
investors as well as practitioners.
