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What would a better PR campaign for microfinance look like?

Ryan Hahn's picture

Microfinance has had its share of PR problems lately. Following the release of the results of two randomized control trials last year, a Boston Globe article carried the subheading "Billions of dollars and a Nobel Prize later, it looks like ‘microlending’ doesn’t actually do much to fight poverty." This was followed by a controversy over the microlending site Kiva, prompted by some incisive blogging by David Roodman, a fellow at the Center for Global Development. Roodman pointed out that Kiva does not actually facilitate loans to individual entrepreneurs but to microfinance organizations, and Kiva subsequently updated its website to be more clear about this point. And to complete the triumvirate, an article yesterday in the New York Times blared that Banks Making Big Profits from Tiny Loans, raising once again the debate around the commercialization of microfinance.

The microfinance industry has taken notice, and has started to push back, particularly against the media coverage of the randomized control trial studies. A group of six practitioner networks (including the Grameen Foundation) recently issued a statement that questions some of the premises of the studies. As usual, Roodman has the money analysis of the statement on his blog. Rich Rosenberg over at CGAP also adds his take on the statement. He concludes:

But let’s be straightforward here. The main value proposition put forward on behalf of microcredit for the last quarter century is that it helps lift people out of poverty by raising incomes and consumption, not just smoothing them. At the moment, we don’t have very strong evidence that this particular proposition is true, and I don’t think we should be putting out public relations material that fudges the issue or suggests that we do have such evidence.

But this begs the question - what are MFIs to do in the (potentially temporary) absence of compelling evidence? Should they simply throw up their hands and give up? Or should they insist on explaining the benefits of consumption smoothing to a general audience? (Don't get me wrong, I think consumption smoothing is probably on its own a great argument in favor of microfinance, but I can just imagine most people's eyes glazing over once they hear that term.)    

My modest suggestion is that MFIs need to do a better job at storytelling. In his post, Roodman is quite critical of the MFIs' reliance on a selective set of success stories. Indeed, the statement devotes nearly a full page to six success stories, all of individuals who took out microloans and successfully invested the money in starting or expanding microenterprises. Roodman is correct that these stories are simply anecdotes that never amount to hard evidence. But I seriously doubt the public-at-large will ever be able to appreciate the debates around the merits and pitfalls of randomized control trials. Thus, MFIs are obliged to fall back on storytelling, at least in their dealings with the general public.

But instead of rehashing the same stories (all but one of the six stories in the MFIs' statement were about women, and all were about microentrepreneurs), MFIs should tell more stories that are consistent with the wide variety of microfinance initiatives. Surely, there must be more compelling stories about men investing in businesses and sending their kids to school. And it is easy to imagine the beaming faces of individuals who have used microsavings products and saved up for a big purchase like a motorbike. Or farmers who took out microinsurance and benefitted when a streak of bad weather came along. Even consumption smoothing could be a compelling story if a microloan helped someone get through the hungry season. Of course, all of these stories would still not make it over Roodman's quantitative stick, but it just might help make the dialogue a little more honest in the future.

Comments

Submitted by Fehmeen on
MFIs must share quantitative data about incremental sales generated with microloans by various micro-enterprises, compared to the period without microloans. It will help us measure the immediate difference, which is important because it is possible that the micro-entrepreneur employs this additional money into wasteful consumption once the money is actually available, hence it is harder to measure the impact of the loan on health, education, etc. Additionally, case studies are vital, as you pointed out. But I believe they must be accompanied by detailed figures, if possible, to help the common man understand the real impact (a couple of extra dollars means a lot to the poor, but not to those more fortunate).

In regards to MFI's, I read the book by Muhammed Yunus about the creation of microfinance and the Grameen Bank. His model, wherein the borrowers eventually become shareholders and stakeholders in the organization, itself, is the only way, I believe, that the poor can lift themselves out of poverty. In Bangladesh, Grameen's borrowers became shareholders and created another fund to help them own their own houses. They also use the profit from the interest collected to supply all of them with health insurance. I don't know how these work, but it hasn't bankrupted Grameen, while many of the borrowers now own their own houses, businesses and what not. However, Mr. Yunus, himself, provided the capital to begin microfinance. He lended $25 per person and, by trial and error, while being sustained by a salary as a professor of economics, he discovered how to support someone in breaking free of the bonds of poverty. Most entities that enter the microfinance world are looking to make a killing, if not a suitable return on their investment. For instance, Fonkoze, in Haiti, while intending to do good for people, must pay 8% per annum to some outside investors that helped it get funded. Therefore, it must charge interest rates much higher than Mr. Yunus did. Supposedly, the interest is less than the loan sharks that feast on the poor, but, still, they are probably too high to assist the poor in doing anything more than getting back to even at the end of their loan cycle and starting all over again. Yet, Fonkoze has amassed quite a reserve in its 15 years in Haiti. Then, there are for-profit companies that enter the business of microfinance. This has obvious pitfalls. You don't think they will be giving their borrowers a piece of the company, just for paying off their loan. They are committed to making a profit, not to sharing the wealth. I think Yunus' model is the best example of how to bring people out of poverty. We must be willing to have many equals and share the pie more widely. We must, as the saying goes, do unto others as you would have them do unto us. As in Yunus' model, they must earn it and they do. Build people's capacity and build their ownership. When one has a stake in the matter, one usually makes it work. Patrick

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