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.