Guest author Kathleen Odell is assistant professor of economics at Dominican University’s Brennan School of Business.
Full disclosure: Last spring, I authored the Grameen Foundation report, Measuring the Impact of Microfinance: Taking Another Look, which was released in June 2010. I was asked by Alex Counts and Todd Bernhardt of Grameen Foundation to comment on Tom Heinemann’s recent documentary, “Caught in Micro Debt,” based on my understanding of the existing impact-assessment literature.
I have just read with great interest the translated transcript of the Danish documentary “Caught in Micro Debt,” which aired on Norwegian television in November 2010. (I understand that there is an English-language version that has very recently become available, but I have not had the chance to watch it.) The documentary paints an unfavorable picture of the microfinance industry, making a number of criticisms. Reading the transcript, I find this film to be deeply biased and misleading on a number of important points.
I don’t have much to add to the discussion about the transfer of Norwegian aid money from Grameen Bank to Grameen Kaylan, and this has been settled elsewhere. Similarly, the question of Grameen Bank charging usurious interest rates has been commented on at length, by David Roodman (his posts can be found here and here), by Alex Counts, and in the definitive study of the bank’s rates by MicroFinance Transparency’s Chuck Waterfield.
I’ll focus here on a claim that the film makes in its introduction: “Tonight we ask if micro loans actually are helping the poor.” Now, here is a subject on which I feel fairly well-informed. For Taking Another Look – which was a follow-up to Nathaniel Goldberg’s 2005 report, Measuring the Impact of Microfinance – I read and summarized much of the recent literature estimating the impacts of various forms of microfinance on the lives of microfinance clients. Here’s what I learned over the course of that project.
If we combine the findings of the best available research, there is modest evidence that microfinance, including microloans, has positive effects on microbusinesses. As my conclusion states, “Various studies showed increases in business ownership, investment, and profits.” With respect to microsavings (admittedly not the subject of the documentary, but surely still relevant), a 2009 study found not only positive business effects, but also positive effects on food expenditures. (Full references are included in Taking Another Look). The microfinance community awaits the release of additional studies of impact, but what we know so far is this: Though some claims of microfinance’s effects have been overly enthusiastic, the academic research, where we trust it, is either inconclusive or points to moderately positive effects. Again from my conclusion: “Based on the studies in this survey, the overall effect on the incomes and poverty rates of microfinance clients is less clear, as are the effects of microfinance on measures of social well-being, such as education, health, and women’s empowerment.”
There is an important discussion to be had here about research methodologies and the nature of program evaluation. However, the point is that if you want to prove that microfinance isn’t helping the poor, the existing impact-assessment literature won’t help you.