> Posted by Elizabeth Davidson
Last Monday, January 30, Milford Bateman, author of Why Doesn’t Microfinance Work? The Destructive Rise of Local Neoliberalism, and David Roodman, author of Due Diligence: An Impertinent Inquiry into Microfinance, faced off in a debate about microfinance and the future of financial inclusion. The event, held at the QED Group and co-hosted by USAID and the Financial Inclusion Forum, was moderated by Chuck Waterfield, founder of MFTransparency.
To say the debate was contentious would be an understatement. Provocative, lively, and fast-paced also describe the two-hour event. Those of us from the Center for Financial Inclusion who attended the debate have been all a-buzz ever since.
The obvious differences in Bateman’s and Roodman’s debating styles were central to how we interpreted the arguments both men offered. As Holly Padgett articulated:
Bateman focused his arguments on extremism and was very eager to simplify the matter at hand. His style of debating clearly and attractively conveyed his principal arguments while avoiding supporting evidence. On the other hand, Roodman analyzed both negative and positive evidence of microfinance before developing a more nuanced, less decisive argument.
Based on their debating methodologies, Josh Goldstein concluded that Roodman did a poor job of defending microfinance against Bateman’s emphatic statements about the harmful nature of the industry:
The debate had an unhappy outcome for those who believe in the efficacy of microfinance. Roodman struggled to counter Bateman’s insistence that microfinance is an abject failure— and that development dollars could be better spent elsewhere. The most he offered is that randomized trials of microfinance have not found either a clear negative or positive effect, a half-hearted endorsement. So when Bateman says that Roodman’s support of microfinance depends on an act of faith not evidence—it is hard to argue the point.
However, others concluded that while Bateman’s arguments were seductive, they lacked substance. Sergio Guzman offered:
Bateman’s arguments, while alluring on the surface, lacked any factual content, like specific examples and figures. Where Roodman analyzed a full set of data—both qualitative and quantitative, Bateman relied (as he frequently does) on anecdotes and analogies aimed at playing on the audience’s emotions rather than arising from evidence. Bateman seemed to be under-acquainted with the hard realities that managers on the ground face as they strive to achieve financial sustainability and face growing demand for their products.
While watching the Roodman-Bateman feud playing out in real time, we couldn’t help thinking about what was missing—the microfinance industry’s side of the debate. Bateman is decidedly against microfinance, and Roodman seems to sit somewhere in the middle, taking a cautious, nuanced view of the industry as a whole. So, why wasn’t the microfinance industry allowed to stand up for itself? This omission, we thought, seemed unfair to the industry.
But maybe the most telling moment of the debate was when each man gave a response to the compelling question posed by Chuck Waterfield: “If we (investors, networks, providers) disappeared, what would happen to microfinance?” Sonja Kelly summarized:
On the surface, their responses were quite similar. The normative implications of their answers, however, were strikingly different. Bateman answered that although the microfinance industry would persist, there was nothing inherently good about such endurance. He insisted that the existence of and demand for an industry does not make it an industry worth keeping (the subtitle of his book, “The Destructive Rise of Local Neoliberalism,” conveys this sentiment even more strongly than his debate rhetoric). Roodman, on the other hand, indicated that the presence of the microfinance industry even in the absence of its creators would be a good start toward financial inclusion. He maintained that, while microfinance itself has not been proven to be the “silver bullet” that it was initially purported to be, the widening of the product line and the applicability of the economic and human capital that are already contained in the industry might be a great benefit for low and middle income countries.
Ultimately, as Roodman acknowledges in his response to the debate, it never truly reached a conclusion. They agreed to disagree and offered little in the way of innovative ideas to move the field of financial inclusion forward. As Holly Padgett concluded:
Ultimately, I have to wonder if perhaps their energy would be better spent researching alternative solutions for development.
You can see what Milford Bateman, David Roodman, and Chuck Waterfield thought of the debate in follow-up videos on the MicroLinks website.
Did you listen in to the debate? What was your reaction?
Facebook
Twitter
6 comments
Comments feed for this article
February 9, 2012 at 5:31 pm
Milford Bateman
I never really expected a fair hearting from ACCION, but this posting is so silly in so many ways that I hope you permit me to quickly respond.
I’m not sure at all what you mean by me having ‘focused my arguments on extremism’. It seems you desperately wanted to link the word ‘extremism’ to my contribution, and this was the only way you could do it. How can rejecting flimsy evidence – evidence that even long-term supporters now admit is hugely flawed – be termed ‘extremism’. Sorry, but I would argue my arguments were on getting to the truth about a major development policy.
By the same token, please accept that in 7 minutes both David and I had to hugely simplify our argument. I could not adumbrate all the supporting evidence I have to hand, and neither could David I guess. But to suggest this as a failing on my/our part is just plain dumb. I certainly had tons of evidence to present, including – centrally – to highlight the fact that there is a complete lack of evidence of positive impact coming from those still claiming that microfinance works.
I agree (but then I would, wouldn’t I!) that David made a poor job of defending microfinance. However, David is a very smart and capable guy, so more likely it is a case that he simply does not have any strong evidence upon which to build a decent case in support of the microfinance model. I tend to think this is why his contribution was so weak, certainly not because of any lack of ability on his part.
As to my contribution ‘lacking substance’ – once again, really, what can you expect in 7 minutes and a 5 minute response? And, yes, I often use anecdotes and analogies to expose the idiocy of the case being made for microfinance. You better check out some of the talks by Prof Yunus befvore you comment again,since he centrrally uses anecdotes all the time, always has. And as I said, it would be far better if some real concrete evidence was presented by someone to support microfinance which we could discuss, but since none exists this is rather difficult. As Duvendack et al (2011) concluded, there is simply no evidence that microfinance has positively impacted on poverty, and the whole narrative has been ‘built on foundations of sand’. So there is actually nothing to show other than simple anecdotes from people working in the field that it works. This simply will not do.
As to the ‘hard-realities’ I fail to understand, this arrogantly presumes that only those working in microfinance ‘understand’ what it is capable of. What a crock. Among other things, why did microfinance workers get it all so wrong in so many cases of over-indebtedness? Why did they fail to spot the coming meltdowns? Why did they not spot that there was no evidence of positive impact? Why do they not reject the gross profiteering in some many MFIs, like Compartamos, SKS, LAPO, etc?
And why is financial self-sustainability quickly assumed to be the driving force behind microfinance (and finance in general), when in fact the evidence from the last 100 years of financial systems seems to be that carefully targeted subsidies and extensive state support are absolutely crucial in helping a country, region or locality develop and sustainably reduce poverty. Please consult any of the recent books by Alice Amsden, Peter Evans, Ha-Joon Chang, Erik Reinart, Robert Wade and others, who collectively show that almost no successful country or region used strict financial self-sustainability as a guiding principle in their attempts to reduce poverty and promote development: quite the opposite, in fact; the most successful economies all attempted to ‘get the financial prices wrong’ in order to successfully develop.
To repeat, it is not the job of critics to come up with the evidence that microfinance does not work – and especially not in 7 minutes! – but the job of the $100 billion+ microfinance industry to come up with the incontrovertible evidence that microfinance actually works. They have not done this by any measure. To pass the buck over to the critics to disprove microfinance, especially when MFIs routinely refuse all forms of research cooperation with anyone not willing to agree to say nice things about them, and when microfinance advocacy bodies routinely attack and undermine the careers of anyone with the temerity to criticize microfinance, is hardly the way forward.
February 9, 2012 at 10:12 pm
Elizabeth Davidson
Milford: Thank you for your thorough response. You make several interesting points, but I will leave them for others to respond.
You are right that seven minutes (or even two hours of debate) are not enough to cover everything. And no, the luxury of being a critic means you don’t have to come up with hard evidence or even promising solutions. Please don’t take this to mean that I don’t value the role of the critic–there is no hope for achieving financial inclusion if we do not take a critical look at what’s working and what’s not. However, criticism and vast over-generalizations are not enough. We need real solutions.
No, I don’t believe microfinance in its current state (and here I, myself, am making a vast over-generalization about a very diverse industry) is enough, but I do believe it can be a powerful part of the solution, especially with better regulation and increased client protection. Of course, you disagree. I would be interested to hear more about your ideas for achieving financial inclusion. As CFI works to guide the path for reaching financial inclusion, we need as much insight and critical thinking as we can get.
February 10, 2012 at 12:12 pm
David Roodman
How like the debate. Elizabeth tries to think things through and is greeted with words like “arrogant,” “silly,” “crock.” Difference is, I’m not diplomatic like her.
Apparently unlike Milford, I take as food for thought the criticism sent my way.
Milford, your statement that it is not your responsibility to provide evidence against microfinance helps explain one of my frustrations with your writings, which is with the use (or lack) of evidence.
–David
February 10, 2012 at 6:21 pm
Does Microfinance Work? « tricia morizio's blog
[...] defense of microfinance, read the Center for Financial Inclusion‘s coverage of the Jan 30th Roodman-Bateman debate (or, better yet, watch the rather dramatic webinar [...]
February 11, 2012 at 1:58 pm
Chuck Waterfield
Well, those of you who weren’t at the debate can see how it was an interesting time to see these two disagree, and can probably understand that I was somewhat nervous to be moderating their interactions! But they did both “behave” pretty decently during the two hours.
It was a challenging format to dig into these broad issues with limited time and with no visuals to display data or key points. And, no, there were no solid conclusions on the impact of microfinance, mostly because we have so little data available on which to base a decision. If I can generalize the three positions above, I would say they are as follows.
Milford says “Prove you have impact, why should I just believe it?”
David says “I looked at the meagre evidence on impact and it is inconclusive.”
And CFI’s initial post “wishes the microfinance industry was allowed to stand up for itself.”
And what I see as the common ground between these three parties is the following: If the microfinance industry wants the outside world – and Milford Bateman – to believe microfinance really is achieving what our marketing materials say, then the microfinance industry should dedicate time, energy and money to collecting the necessary data. The original CFI post talks about the need for us to understand the challenges that managers are under to reach financial sustainability. Personally, I feel that reflects much more the situation of microfinance 5-10 years ago. We no longer have an industry struggling to reach financial sustainability. We have an industry where a large number of institutions are generating very high profits. I say: Let’s see those high-profit institutions put some of their profits into evaluating if they really are achieving the double-bottom line they all talk about.
To me, it’s pretty simple. Poor people have scarce resources. The more profit we extract from them, the less resources they have. If we subsidize services, they are better off (more stays with them). If we are borderline financially sustainable, they are less better off, but perhaps still better off. If we extract the kind of profits we often see in microfinance, which exceed profit levels in most other industries, then that is even less resources left with the poor. As we extract more and more profit from them, at some point, the poor are not better off. They are potentially even poorer. Where is that line? How much profit can we make off the poor and still say we are clearly achieving double-bottom line goals? I’ve yet to see the industry rise to the challenge of answering that question.
I propose that it’s time for the industry to stop saying “trust us” and for us to put some impact money where our mouths are.
Chuck Waterfield
CEO, MFTransparency
February 13, 2012 at 9:49 am
Dasha Kuts
As one of the organizers of the debate I would like to thank CFI’s staff for sharing their thoughts and continuing this important discussion; in addition, I would like to respond to some of the points raised above. While the debate was funded by USAID, my responses do not represent the views of USAID.
In the beginning of 2011 I started managing and developing content for the USAID-funded After Hours Seminar series. These series started in 2005 (to these date there have been 58 seminars) and the series have been dedicated to a wide variety of subjects around financial inclusion and microfinance in particular. As soon as I started the job, microfinance industry came under great scrutiny, and my goal has been to make the after hours seminars a platform where international and DC-based practitioners can openly discuss challenges and work together to find innovative solutions.
So I hope that this debate was the first of many because I agree with Elizabeth and David that at the past debate we did not proceed with offering solutions or having a productive conversation of the best ways to meet the needs of the poor and financially excluded (I also did not expect for it to take place on January 30th due to the limited time).
Financial inclusion and economic development overall are complex areas and while there are people who got into microfinance for personal gains, there are others, who made sacrifices to work in microfinance because they want to make a positive contribution to the society with their work. At the seminars I met many from the latter category. These people, in addition to having good and honest intentions, are curious and eager to hear from both sides of the debate (as was manifested on January 30th). Growing up in USSR and witnessing the struggles of my country as it transited to the free market economy, I know that good intentions can lead to bad results and I think that microfinance industry right now has to go through rigorous analysis to reevaluation of its impact to make the necessary adjustments. Therefore, I completely agree with Chuck’s points about the need for honest assessments and corrections.
Microlinks will contribute to fostering these discussions with the upcoming After Hours Seminars as well as new seminars on Emerging Payment Systems (to discuss, among other things, how and if emerging technologies can contribute to development/financial inclusion). In addition, based on the many requests that I received after the debate, I am working to organize a 3 day online discussion on Microlinks, dedicated to the subject of innovative initiatives in microsavings (stay tuned as this discussion will take place on Microlinks around June 5-7) and I hope that we can have an in person event on this subject later this summer/early fall.
Thank you again for your interest, participation and contribution to this discussion!