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The microfinance movement is one of the most successful ever in the worlds of foreign aid and philanthropy, not least thanks to the stories it told of poor women climbing out of poverty through entrepreneurship. But the hype has side effects: credit bubbles in India and other countries, and a brewing backlash as rigorous new studies challenge the claims of poverty reduction. David Roodman set out to cut through the hype with his Microfinance Open Book Blog that charted the journey to his 2011 book Due Diligence: An Impertinent Inquiry into Microfinance.
How can decision makers leverage the private sector to improve the lives of women?
Diversify global supply chains by increasing the number of women-owned firms in procurement channels.
Design financial services with women’s needs in mind and collect and disseminate sex-disaggregated data.
For nations and international organizations:
Eliminate formal and substantive biases that prevent female-owned firms from participating in international trade.
Recently CGD hosted the Second Annual Birdsall House Conference on Women, which focused on beyond-aid approaches for women’s economic empowerment, with particular emphasis on private sector engagement. CGD experts have written about how international organizations and national agencies should examine and correct gender biases in the design and delivery of their strategies for financial inclusion. But while public sector interventions are crucial for promoting women’s economic empowerment, the panelists pointed out that the private sector is in many ways better equipped to provide opportunities for women to grow their businesses, investments, and incomes. Here’s our takeaway.
Possibly the most popular weapon in the “beyond-aid fight” to promote both development and women’s financial inclusion has been microcredit. Yet despite strong claims that microcredit is the silver bullet we all need, there is little rigorous evidence that these programs have been as transformative as once assumed. Our keynote speaker Dr. Dean Karlan, who has conducted field research on financial inclusion and enterprise growth in the developing world, explained that in reality, the gender-effects of microcredit are limited: while credit may promote better risk management and business confidence, it does little to spur growth, mitigate market failure, and create positive spillovers for communities. Truly gender-inclusive development should promote female decision making in addition to economic growth.
How can the private sector help?
First, corporations should diversify their suppliers by widening their pools of contractors to source from female-owned enterprises. While aid channels can provide assistance to women entrepreneurs, they can’t provide the trillions of dollars of purchasing power held by the private sector.
Aside from promoting social responsibility, introducing diversity into supply chains just makes business sense. Developing more robust female-owned businesses creates competition, which can lower prices. It also brings in new customers: companies can reach poor and rural consumers who may not have had access to their products before. WeConnect provides a perfect example of how to get this done: started by Elizabeth Vazquez, the initiative connects companies like Walmart, Coca-Cola, and IBM to businesses owned by women worldwide. These partnerships have resulted in a scale up unlike any national project: Walmart has sourced $20 billion in contracts from women-owned businesses and doubled its sourcing from female suppliers abroad since 2011. Further, to address demand-side, capacity-related constraints, WeConnect has encouraged firms to pair up with organizations like SEWA and WIEGO to train and mentor women business owners. This way firms can connect with the most vulnerable women, especially informal workers, to enhance their capacity, visibility, and voice.
Second, and perhaps obviously, banks and other financial service providers are uniquely positioned to promote women’s financial inclusion. While the number of formal bank accounts has increased significantly over the past few years, the gender gap in account ownership has not budged. Among the poorest, this gender gap is larger still, despite numerous studies showing that women are more prone to save than men. Banks will continue to miss out on a huge growth opportunity until they start viewing women as important consumers of financial services and design products to help them save.
Providing secure, confidential savings is a start and can be easily achieved through mobile platforms, which have the potential to mitigate women’s mobility constraints and the pressures they face to spend rather than save. Other simple changes banks can make are to make their branches open during hours accessible for women and hire female bank agents. And, as we’ve emphasized before, banks need to monitor their progress on promoting financial inclusion with sex-disaggregated data on their customer base, as Chile has done for over 10 years.
At CGD, we’re running our own evaluation in Indonesia and Tanzania to measure the impact of supply and demand side interventions on women’s use of mobile savings platforms. Through this evaluation, we’ll generate better data for practitioners and policymakers to improve their approaches in narrowing gender gaps in access to and use of financial services.
As we enter into a period of political transition, it’s crucial women and girls stay on the development agenda. We urge decision makers to consider beyond-aid options to empower women, particularly by leveraging the resources and positioning of the private sector to narrow gender gaps. We need to start thinking beyond common practices like microcredit and link women directly to supply chains and financial services that meet their needs, while systematically eliminating gender-biased laws and institutions.
On Monday, Grant Shapps, the UK's Minister of State at the Department for International Development, kicked off DFID’s Energy Africa campaign at an event hosted by the Shell Foundation designed to help his team figure out how the UK government can invest its political clout and an initial £30 million ($46 million) to tackle rural energy poverty in Africa.
Energy Africa’s inspiration came from the Minister’s trip to Tanzania. There he saw a range of off-grid small-scale solar panels targeted at poor homes like ones set up by Off Grid Electric, a slick social enterprise delivering basic energy access — enough to power LED lights and a phone charger — to poor homes with rooftop solar panels and pre-paid metering. Minister Shapps wants solar power to be a big part of how we get energy access to “millions” of homes.
As my colleagues Todd Moss and Madeleine Gleave eloquently argue in seven persuasive infographics, we know that small-scale solar might meet a few basic needs but won’t catalyse economic growth. And there’s an inglorious history of private interests capturing our aid budgets to secure subsidies.
Given solar’s limitations and these risks, how can we make sure that Energy Africa fulfils Minister Shapps’s ambitious brief?
Three fast facts
Small-scale, off-grid solar is actually pretty expensive
The numbers for the Off Grid Electric installation that impressed Minister Shapps tell an interesting story.
A day’s access to OGE’s most basic service costs $0.19. This beats the $0.25 a day poor Tanzanian homes spend on kerosene (other sources put this at about $0.16 a day), but if all a household does is run a couple of lights and charge a phone, small-scale solar power is actually more expensive than electricity from Tanzania’s grid . Many communities simply can’t access that grid because of obscenely high connection charges. In some places, then, the catalytic investments are “under the grid”, connecting communities to modern levels of energy access. And off-grid solutions do not scale up — better energy access creates wealth, and wealthier people need better energy access.
Small-scale solar works for small-scale problems
About 600 million Africans are energy poor– a stranglehold on development. Poor homes, for example, rely on biomass (coal, dung, or wood) for cooking. The WHO estimates that exposure to the resulting smoke causes 4.3 million premature deaths a year in developing countries — more than malaria, TB, or HIV/AIDS. Replacing these cooking technologies would be a public health victory, but a simple electric stovetop usesover 500 kWh a year for a household cooking twice a day, which is far out of household solar’s range. Other transformational interventions suffer under the same constraint: for example,60% of refrigerators used in African health clinics suffer from unreliable electricity connections, breaking the cold chains that keep vaccines safe and effective.
Building a modern economy means building modern levels of energy access
Energy poverty chokes off whole economies because businesses struggle to grow when they can’t get access to reliable, reasonably-priced electricity. According to CGD’s analysis of the World Bank’s enterprise surveys, energy access is amongst the most serious problems facing developing Africa’s private sector, where firms estimate that losses from outages alone eat up 10% of their sales. As Aleem Walji of the World Bank put it: "Today, countries like Uganda are still 90% unserved by electricity. Can you imagine not having power in 90% of any country and still trying to grow the economy?"
A bad idea
With £30 million of funding on the table and an impressive guest list that was heavy on impact investors like Sunfunder and innovators looking to expand access to their products, it’s little surprise that the most popular breakout session during Monday’s event was the one on financing.
Many of the smart ideas in the room came down to directly supporting businesses. For example, DFID could use the money to lend to firms, guarantee their debt, help them manage local currency risks, or invest directly.
Though this makes for a compelling narrative, spending aid money directly on firms is risky. If we try to spend £30 million across a landscape of “innovative” financial instruments, we’ll be left with a mishmash of small-scale equity stakes and various loans or contracts to reduce risks, ultimately giving a vanishingly small leg up to a small coterie of (handpicked) favourites. Worse yet, issuing loans or making investments means picking winners. One of the toughest lessons from the aid industry’s love affair with microcredit has been that handpicking firms for our attention and resources risks creating flabby incumbents that stifle competition — not so much the healthy commercial ecosystem that Minster Shapps envisages as a toxic monoculture.
We can look at the paucity of early-stage financing for solar energy start-ups in frontier markets and believe that either (a) other investors have gotten it wrong, or (b) that the risk-adjusted returns are too low . It’s unlikely that DFID will find deals that investors, including impact funds and philanthropies willing to suffer low returns, have ignored. And it's not surprising that investors and innovators would tell us that it’s a great idea for us to use taxpayers’ money to do exactly that.
One way forward…
Let’s agree that small-scale, off-grid solar is just a small part of the energy poverty puzzle. And let’s agree that it’s a band-aid-not-a-cure that belongs in communities that are the least likely access the grid any time soon. How could we spend £30 million in a way that builds, rather than distorts, this market?
For many rural solar firms, a key problem seems to be access to the working capital to scale up, pay suppliers, or invest in new products. For low-income consumers, the problem is the fixed cost: solar panel prices have tumbled, but the upfront and installation costs of a setup like the one in Tanzania are still too high.
Some firms have responded by opting for a pay-as-you-go business model, installing panels at a loss and recouping their costs (and generating a profit) by selling daily access to the electricity they produce. This effectively turns firms like Off Grid Electric into creditors with sidelines in solar hardware. But though demand is high, it takes operators a long time to turn these tiny cash flows into sizable chunks of retained earnings they can use to, for example, expand into new markets.
What could DFID do? It could use its financial clout to bring this financing forward, capitalising a small fund dedicated to buying packages of a share of future payments from firms supplying customers in specific markets. This gives rural solar providers working capital today in exchange for payments over time. This is hardly original: it’s basically how our mortgages work, and has been used successfully to finance firms like SolarCity in the US.
Set out like this, the small cash flows are a feature, not a bug: even a £10 million fund could buy many more of those receivables, spreading our impact much farther. By only buying a share of the receivables from each firm for given market, DFID doesn’t accept all of the risk, keeping private firms’ shoulders to the wheel to pick good projects in areas with healthy, long term consumer demand — precisely the places the grid is least likely to be viable soon and so where solar solutions are most needed.
Most importantly, the offer could be made open to any solar operator that passes a minimum hurdle for accounting and labour standards, obviating a need to pick winners.
* * *
It’s tempting to think that putting solar panels in the hands of poor consumers will deliver fast gains in welfare and prosperity. In reality, we can’t leapfrog the dull but important longer-term infrastructure investments in better, more reliable, cheaper, and cleaner utility-scale grid connections like those that Power Africa is building out.
Minister Shapps brings impressive momentum and enthusiasm to the Energy Africa campaign. More than once during Monday’s event, attendees like Christine Eibs-Singer who have worked on rural electrification for decades said how exciting it is to get buy-in from someone of his stature. Energy Africa’s ambition should be lauded. The challenge is to harness this momentum, our aid financing, and the Minister’s political insight to scale up rural solar in places that the grid cannot reach without distorting the market or subsidizing inefficient incumbents.
Six newly published RCTs show limited impacts on poverty
Two influential movements within the development industry collided head-on this month: the microcredit movement and the movement to subject development policies to rigorous impact evaluation. As Rachel Glennerster, the director of MIT's Poverty Action Lab put it:
A decade later, the new January volume of the American Economic Journal: Applied Economics that Glennerster refers to contains six separate randomized control trials, using various designs and methods, all attempting to measure the impact of microcredit on poverty (broadly defined), and all reporting their results in a more or less comparable format. It's early days, but I think it's fair to say this volume marks a major milestone in the evolution of development economics as an experimental science. It is not only the culmination of over a decade of work by dozens of researchers working across six countries and four continents, but one of the first instances where development economics has confronted multiple, high-quality experimental results on a core question in the field.
The results, however, are a tad disappointing for microcredit proponents.
As Abhijeet Banerjee, Dean Karlan, and Jonathan Zinman note in their introduction to the volume, the most consistent finding across the six studies is a "lack of evidence of transformative effects on the average borrower." None of the six studies found any significant impact on borrowers' household income. While the Mongolia program raised borrowers’ consumption (economists' preferred measure of poverty reduction), the Bosnian study found the opposite effect, and the Ethiopia study found a negative impact on a related concept, food security.
At this point, it is clear that any responsible policymaker must support the end of public subsidies for microcredit, social entrepreneurs should redirect their energies to some better cause, and this multi-billion dollar industry must wind down. Rigorous impact evaluation has proven it was all built on a myth.
I’m kidding. In reality, I don’t know of anyone making this argument. But it's useful to articulate why not. The evidence is fairly damning, after all. So here are two reasons why it's premature to draw any sweeping policy conclusions.
All six studies find that extending access to microcredit has a big, positive impact on access to credit. This is perhaps not as trivial as it might sound, as it implies microcredit is not exclusively crowding out other lending sources. People who wouldn't have gotten loans are now getting loans, and when they do, they're starting new businesses and expanding old ones.
To paraphrase my friend David Roodman in his excellent CGD book on microfinance: if development is freedom, and freedom means a bigger choice set, then microcredit is successful development. People are choosing to borrow and invest in ways they couldn't before.
The results of the six RCTs were also much more varied than that first table implies. For starters, the positive consumption impacts in Mongolia and the “social effects” in Mexico (a significant rise in women's decision-making power) both deviate from the overall picture of zero impact on welfare outcomes. But the real heterogeneity across the six studies is hidden behind those gray X's in the table above, which indicate the many insignificant and inconclusive results across the various studies. Some of those X’s should genuinely be considered zeros. In other cases, however, the confidence intervals are wide. These are cases where focusing solely on the sign and statistical significance of a result gives a very incomplete picture.
Measured in monetary terms—using comparable purchasing-power parity dollars—the point estimates of the impact on profits ranged from an increase of more than $700 per year in Bosnia to zero in Mongolia. Conversely, impacts on consumption ranged from a $700 per year decline in Bosnia to a $600 increase in Mongolia. If you squint at the figure, you could argue there's a visible trade-off between using the loans for business investment and profit versus short-term consumption.
With the enormous benefit of hindsight, this heterogeneity is not surprising. After all, the programs and contexts in which they operated differed enormously. Some of the programs lent only to women, others to men as well. Some gave individual loans, some only group loans. And both loan sizes and interest rates were very different in different places, ranging, for instance, from a 15 percent rate in Morocco to 110 percent in Mexico. The catchall term "microcredit" encompasses virtually infinite permutations of program characteristics.
This means there is never going to be a single answer to the question, "What is the impact of microcredit?" because, inevitably, "it depends." Lant Pritchett and I wrote a short paper for the recent American Economic Association conference (available here), which discusses this heterogeneity and what it means for evidence-based development policy. The bottom line is that policymakers should be extremely cautious in extrapolating the results of impact evaluations across contexts. Notably, the authors in this new AEJ volume focus on nuances and underlying mechanisms, and carefully avoid such extrapolations.
Of course, the ultimate goal is to eventually be able to predict the impact of some new microcredit program in some new context, in the same way “real” scientists can predict the boiling point of water based on the local air pressure and oxygen levels. We may not be there yet, but these new studies take us six big steps closer to that goal.
You can read the six studies published in AEJ here:
Angelucci, M., Karlan, D., & Zinman, J. (2015). "Microcredit impacts: Evidence from a randomized microcredit program placement experiment by Compartamos Banco," American Economic Journal: Applied Economics, vol 7(1). [ungated]
Augsburg, B., De Haas, R., Harmgart, H., & Meghir, C. (2012). "Microfinance at the margin: Experimental evidence from Bosnia and Herzegovina," American Economic Journal: Applied Economics, vol 7(1). [ungated]
Attanasio, O., Augsburg, B., De Haas, R., Fitzsimons, E., & Harmgart, H. (2014). "Group lending or individual lending? Evidence from a randomised field experiment in Mongolia," American Economic Journal: Applied Economics, vol 7(1). [ungated]
Banerjee, A. V., Duflo, E., Glennerster, R., & Kinnan, C. (2013). "The miracle of microfinance? Evidence from a randomized evaluation," American Economic Journal: Applied Economics, vol 7(1). [ungated]
Crépon, B., Devoto, F., Duflo, E., & Pariente, W. (2014). "Estimating the impact of microcredit on those who take it up: Evidence from a randomized experiment in Morocco," American Economic Journal: Applied Economics, vol 7(1). [ungated]
Tarozzi, A., Desai, J., & Johnson, K. (2013). "On the impact of microcredit: Evidence from a randomized intervention in rural Ethiopia," American Economic Journal: Applied Economics, vol 7(1). [ungated]
Twenty-five years ago today, I walked into Building 1 of the Microsoft Corporation’s wooded campus in Redmond, WA, and reported for work as a programming intern. I had a pretty good time that summer. What I remember most is wondering whether I should buy a bit of stock in the company—and then spending all my earnings on long-distance calls to my new girlfriend. In retrospect, MSFT would have been a fantastic investment; my girlfriend was an even better one. I also remember leaving the company with a desire to work toward purposes more significant for humanity than beating Borland. But I was unsure how I, a programmer and mathematician on the edge of adulthood, could serve such goals.
Twenty-five years later, I have many blessings to count, among them an extraordinary opportunity at the Center for Global Development to apply the skills that brought me to Microsoft in service of the sort of mission that drew me away. Next week, however, will be my last at the Center. No offense, but I’m pretty happy about saying goodbye, and for the best of reasons. After more than 11 years here, and nearly 20 in think tanks, I’m heading for something new. I will begin working for another major Seattle-based institution cofounded by Bill Gates. (Hint: there are only two.)
I started at CGD in March 2002, when this place was months old and the wound of 9/11 was raw. My first assignments were to spearhead the Commitment to Development Index and to assist Bill Easterly in reexamining an influential study suggesting that foreign aid could raise economic growth. Also in those early days I promised Nancy Birdsall I’d investigate the impacts of microfinance. All three projects set me on intellectual journeys that worked out in ways I did not foresee. In the aid-growth work, I fell into an unusual analytical stance: being a demanding consumer of econometric research, unwilling to believe (non-randomized) studies until I had rerun and scrutinized them on my computer. In the index project, I fused those mathematical and programming skills with a penchant for public pedagogy. In the microfinance project, I stumbled on an open style of inquiry, writing a book in public, through a blog.
It was the completion of that book and the outreach for it that brought me late last year to a sense of closure.
On July 15, I will jump to the Bill & Melinda Gates Foundation, where I will become a Senior Economic Advisor in a new unit called Policy Analysis and Finance. I’ll work in the foundation’s DC office. Unlike most parts of the foundation, the PAF unit’s main purpose is not to disburse funds against ambitious strategies, but to perform analysis. Its premise is that the foundation’s prominence makes it not just a funder, but also a partner and potential influencer of other institutions working on global health and development: bilateral donors, the World Bank, the government of Nigeria, and so on. Understanding what policy changes would be most realistic and constructive—exercising the influence intelligently—requires analysis from many perspectives: public health, economics, politics, history. Some of the unit’s work is done in-house and some is funded or commissioned.
I hope others have benefited from my labors at CGD. I know I have. It has been a privilege to work in an environment that prizes freedom and rigor and impact, and to do so with such bright, creative, funny, passionate colleagues. It has been a privilege to be given such room to grow. I owe that opportunity above all to Ed Scott and Nancy.
Last winter my dance group performed in a holiday show called Revels. It was essentially a musical: a sequence of gorgeous song and dance numbers picked from centuries of English folk and classical tradition and strung together with a thin plot. However superficial, the story moved me to tears. On a late December day in the 1920s, the ninth Duke of Rutland visits his ancestral manor. He intends to prepare it for demolition so that a motorway can be built. But the Duke discovers that every winter solstice, eight centuries’ worth of his ancestors reunite there for a party—to sing, to dance, to feast. On this night, the revelry recurs, and he and his wife and children are drawn in. Witnessing this cross-century family reunion, I realized that we all have our ghosts, our dead who are still with us at least in memory. And we are linked to them by living traditions. In this dramatic motif is a reminder of continuity over time. In it also is a reminder that each person’s tenancy on life is ephemeral. We pass through. The institutions we build and inhabit, being inanimate, can outlive us—that is, if our heirs care for them.
At 60 employees, CGD is small. But hundreds of people have passed through. It has come my turn to join them (at least for now!). I am proud to have contributed to the culture and traditions that define CGD. I’m sure they will outlast me and thrive.
Roodman, a man of many talents, performs at CGD 10th anniversary celebration, at the British embassy in Washington DC.
Don't get me wrong: sarcastic headline aside, I'm not in favor of the exploitation of children. However, I feel moved to speak against a recent push, I guess led by Hugh Sinclair, to insert a ban on child labor into the lending policies of microfinance institutions (MFIs), microfinance investors, and such accrediting programs as the Smart Campaign and the Seal of Excellence. The concern behind this movement is serious: that microcredit is financing, thus increasing, the exploitation of children. So the cause it leads to is understandable: a push for policies to break any such link.
Legality. Hugh argues that child labor is wrong because it is illegal in many countries with microfinance. Excellent point! In fact, most microfinance clients are engaged in illegality one way or another: squatting on city land to build houses the width of a queen-sized bed, failing to pay taxes on their meager earnings, failing to register their tiny businesses with the authorities... So to expunge microfinance of scofflawery, we need to shut it all down. Seriously, Hernando de Soto showed how, at least in Latin America, elites have purposely complicated the law in order to make formality---legality---a privilege rather than a right. Being poor means you are almost automatically illegal. Thus legality is a wobbly compass microfinance.
Ethics. We are all descendants of children who survived to adulthood only by laboring, whether as farmers or herders or gatherers. Only with their labor could the family subsist. I look forward to the day when there is no child on earth for whom this is the best choice. But we are not there yet. And we are not as close as you might think. Going by the numbers, the world has made great progress getting kids into school. However, a huge number of these children aren't learning very much. So how quick should we be to tell parents struggling under circumstances far different from our own what the right choice is? Many of them agree with you on the value of education. Whether it is best to put their children in the schools they can afford today is another matter.
Evidence. The effect of microfinance on child labor is an empirical question, whose answer will probably vary by context. On the hand, microfinance sometimes stimulates at-home businesses, leading parents to pull kids out of school and employ them at home. On the other, it gives parents a new way to finance school fees, providing them the discipline to set aside money each week for this purpose.
The evidence, like the ethics and the legal argument, is ambiguous. A good non-randomized study in Thailand found credit to increase child labor. One in Guatemala found the opposite. (Hat tip to Hugh for both.) The randomized studies, which I trust more, have mostly found little impact. In Hyderabad microcredit availability did not lift or lower the number of kids in school. In Manila, loans made no difference for the average response to "Any Household Member Helping in Family Business?" Ditto, essentially, in Mongolia. In Morocco, children worked 5.05 hours/week in areas with more microcredit versus 4.88 in areas without, a difference that is not statistically significant; meanwhile the number of children per family in school was slightly but statistically higher in the microcredit treatment areas, at 0.76 instead of 0.73.
An exception appeared in Bosnia & Herzegovina. Among less-educated, and presumably poorer families, microcredit caused more 16--19-year-olds to work at home, where "home" often meant "farm." As I blogged before, it is not easy to second-guess poor families in the midst of a major economic crisis if they use credit to invest in their farms, perhaps in more livestock, and put these near-adults to work.
Principals and agents. Now, one could retort that even if microfinance does not press children into labor on average, it still must do so sometimes. After all, how comforted would you be if I told you that microcredit does not increase slavery on average? And microfinance increases child labor in some cases, then one can argue that MFIs should vow never to finance such exploitation, and that microfinance investors must demand such vows in return for funds.
I do hope that microfinance officers don't leave their ethics at the home, that if they find a child laboring in great duress, and they know that a loan would make things worse, then they will not lend. But in general, microfinance, especially group microfinance for the lower-income clientele, has succeeded by not taking much interest in clients' business. Monitoring clients takes time, time costs money, and higher costs lead to higher interest rates. Anyway, trying to determine what people do with their loans or savings withdrawals is often a fool's errand because of fungibility. Moreover, as Hugh's book dramatizes, reality tends to diverge from rhetoric as one moves along the microfinance investment chain---from individual investor, to investment fund, to MFI headquarters, to field practice. MFIs may say they have banned loans for child labor, and MFI investors may buy that reassurance rather easily---but should we believe them? It will be a great achievement if a program like the Smart Campaign can reliably monitor and certify microfinance field practice as being transparent and non-coercive. I think it is a goal too far to certify what is being done with microfinance in each household. Microfinance investment funds promising to rid their portfolios of child labor will be setting the stage for hypocrisy.
This issue exemplifies a larger problem in international aid and philanthropy. A donor that enters a country with plans to make loans or drill wells or build roads cannot understand, much less control, many of the consequences of those interventions. Often local political structures undermine intentions: bed nets meant to be donated to the poor are pilfered and sold to the highest bidder. Pouring microloans into an Indian slum will perturb the paths of thousands of families. In some, more children will walk out the door each day, headed for the local schoolhouse. In others, more will be enslaved at looms (though I do wonder how much of the most vile child labor occurs in household-level enterprises). In the face of diversity and uncertainty of the outcomes, donors can either proceed or not. I think they'll do best to base their choices on the evidence---which looks pretty good in this case---and a general theory about how the intervention contributes to development. Roads, for example, do harm as well as good, but in many cases clearly more good. Similarly microfinance (if the credit is administered in moderation) is a generally useful service that can give people more control over their lives. Some will use that control for ill, but that doesn't make giving the poor more options a bad idea.
The nine client-members on the board of the Grameen Bank, all women, have made a sassy public response to the interim report of the commission investigating the Grameen Bank. (Hat tip to the Grameen Foundation.)
I have to admire the pointed prose:
The Commission even records in their report that we do not participate in board discussions. They complain that even the learned representatives of the Governments did not participate in the discussions either. What a great board! None of the members participate in the discussion, but the bank still wins the Nobel Peace Prize! A non- speaking board has created the most admired bank in the world! Why does the Commission underestimate us? Could it be because we are poor and because we are women!
I was a bit disappointed that they prefer to play the gender card, pointing out that the commission is all male, to addressing the substance of the interim report. Truly the two sides are talking past each other.
But Asif Dowla's recent comment helped me appreciate one thing the board members wrote:
Most of us never went to school, but that did not mean that we did not know how to run our business and run Grameen Bank. We managed the bank better than anyone else in the banking world. We did not let our bank become a corruption-ridden bank, like the government banks are.
Maybe they are not finance wizards, but they are sterling board members by historical Bangladeshi standards in one sense, as Asif explained:
One has to compare Grameen’s governance with governance in state owned and private banks in Bangladesh. The state owned banks board membership are handed out to people not because they are “experts in law or finance”, but because they are supporters of ruling political party and the membership is a form of patronage and payoff. Until recently, the board members of private banks were full of people who were defaulting on loans from state owned banks! In many cases, the directors of private banks were taking loans from their own banks!
Business training programs are a popular policy option to try to improve the performance of enterprises around the world. The last few years have seen rapid growth in the number of evaluations of these programs in developing countries. We undertake a critical review of these studies with the goal of synthesizing the emerging lessons and understanding the limitations of the existing research and the areas in which more work is needed. We find that there is substantial heterogeneity in the length, content, and types of firms participating in the training programs evaluated. Many evaluations suffer from low statistical power, measure impacts only within a year of training, and experience problems with survey attrition and measurement of firm profits and revenues. Over these short time horizons, there are relatively modest impacts of training on survivorship of existing firms, but stronger evidence that training programs help prospective owners launch new businesses more quickly. Most studies find that existing firm owners implement some of the practices taught in training, but the magnitudes of these improvements in practices are often relatively modest. Few studies find significant impacts on profits or sales, although a couple of the studies with more statistical power have done so. Some studies have also found benefits to microfinance organizations of offering training. To date there is little evidence to help guide policymakers as to whether any impacts found come from trained firms competing away sales from other businesses versus through productivity improvements, and little evidence to guide the development of the provision of training at market prices. We conclude by summarizing some directions and key questions for future studies.