The biggest gap in Financial Inclusion? Metrics.

 e-MFP, 27 February 2015

The microfinance sector has been abuzz with the implications of the “final word” study on microcredit impact. For many, including myself, this has been an opportunity to consider a trend that’s been taking place for several years now – from microfinance to financial inclusion. In my last blog, I touched upon the subject of metrics that this new shift requires. I would like to delve deeper.

To use the definition of the Center for Financial Inclusion, “Financial inclusion means that a full suite of financial services is provided, with quality, to all who can use them, by a range of providers, to financially capable clients.”  That encompasses many things, but perhaps more intuitively, financial inclusion means providing serving those who aren’t being served – whether they are too poor, too informal, or too remote.

It’s a compelling goal. Yet the metrics we use to measure progress came from a time when microfinance meant making loans to the poor. They simply are not up to the task of measuring financial inclusion. more →

Microfinance is dead. Long live Microfinance!

e-MFP, 12 February 2015

The verdict is out. Final publication of six randomly-controlled studies (RCTs) has drawn a pretty thick line under the words of David Roodman: the average impact of microcredit on poverty is about zero. The notion that microfinance lifts the poor out of poverty is officially dead.

Now, the caveats. The studies evaluated microcredit only – not savings or payments or insurance. Nor did they cover so-called microfinance-plus programs, which provide training, health care or other interventions, along with credit. It’s quite possible that these or other specialized branches of microfinance practice do raise the living standards of the poor. But, if I may be so bold, even the best of these initiatives are probably less effective than we might have supposed.

This is good news. We in the microfinance community could use some humility. We’re financiers, not doctors, scientists, or teachers. To think that we can alter the lives of millions is hubris. more →

Measuring success in microfinance

e-MFP, 25 Apr 2014

A recent article by the Economist hails a study in Bangladesh by Shahidur Khandker as “the biggest study so far [which] finds that microcredit helps the poor after all.”  Within the sector, the article has been widely circulated as proof that, indeed, microfinance does work. Rupert Scofield, CEO of FINCA, found vindication that this study finally resolved the problems of earlier randomized control trial (RCT) studies, which had found that microloans had zero impact on clients:

The recent short-term studies were undertaken in highly saturated markets and focused on clients who diverted some or even all of their loans into consumption. Microcredit works best when the client uses it to fund a business.

But there’s the danger of jumping to early conclusions. More →