Thursday, June 16, 2011

Microfinance: Not a cure-all

While I'd love to bore you all* with stories of questionable foods, house lizards and Ghanaian taxi drivers (and promise to do so very soon!), I'm choosing instead to get the ball rolling by sharing a bit about what I'll be working on this summer.  I've begun two out of five projects this week - one is researching current linkages between mobile technology and agriculture (to inform a pilot Grameen Foundation initiative) and the other is researching the state of microfinance in Ghana.

Compared to other African countries, Ghana has a relatively developed field of microfinance with over 40 institutions providing loans of $130 million to about 350,000 customers.  As expected, I've encountered arguments, some bitter and some worthy, over what works and what doesn't.  High interest rates, inclusive and short-term financial models and an immense funding gap threaten the livelihood of the sector in certain areas.  Some critics go so far as to say that microfinance even perpetuates poverty by offering "second-rate" financial services to the poor.  The problems with arguments against microfinance, as I see it, are as follows: 1. Microfinance cannot be viewed as a cure-all for poverty, and 2. critics tend to examine microfinance in its current state and fail to acknowledge the evolving nature of financial services for a complex group such as the poor.

Ever since Mohammed Yunus made that first $27 loan thirty five years ago, microfinance has burgeouned into its own professional field accompanied with declarations that this is the solution we've all been looking for.  Critics who warn that microfinance isn't all it's cracked up to be are usually reacting to blanket claims made by professionals in the field that microfinance is the only way to solve poverty effectively.  (They do this in part to attract donor money, and you can't blame the players in the tricky game of fundraising.) But to state that microfinance is having little impact on conditions of the poor is ignorant at best, and these black-and-white generalizations - on either side - do nothing to further positive development.  It's like saying that the eradication of AIDS will not lift all people out of poverty.  Clearly that is the case, but does it mean that agencies dedicated to seeing the end of the disease should just quit their jobs and head to the beach?  Of course not.  The truth is that poverty is a deep, complex problem entrenched in history and societal standards, and no one thing could ever blot out the horrific conditions of the poor.

Because of this, microfinance cannot exist in a vacuum.  The sector is well positioned, especially in well-developed markets, to serve as a tool to enable all other functioning models of development, like healthcare, education, food security and access to water (saw a great Austrian film on water at the Goethe Institut on Monday: Uber Wasser.)  MFIs need to have the capacity to create strong ties across sectors to develop a sector worthy of investment in order to penetrate massive societal challenges.

There are several cases of pioneering models.  Companies seeking to strengthen their value chains have partnered with microfinance organizations, as Unilever has done in India.  MFIs and development organizations can team up with established banks, like the partnership between CHF International and HFC Bank or Barclays Banks' work with susu collectors here in Ghana.  Governments can assist microfinance sustainability by not placing ceilings on interest rates and promoting competition.  Innovation, technical expertise and technology will also push the sector into addressing more than just the financial needs of the poor, and that is where services from organizations like the Grameen Foundation come in.  Microfinance will not save the world (can anything really?) but it is certainly one big and helpful step in the right direction.  As I begin to conduct in-person interviews with MFI staff and customers on the ground here, I look forward to sharing their views on what microfinance has accomplished, and what the future of the sector looks like here in Ghana.

(*or just my mum, since she's most likely my one reader.  Hi mum!)


  1. You have two readers - this currently stay at home mommy with a need for intellectual stimulation & adult interaction (even if just one-sided w/ no discussion)!

  2. Thank you Mandi! At some point, I'm going to be doing some research on how skilled volunteers can be leveraged down here, so I'll be sure to prompt a two-sided discussion just for you. Give Anna Katherine a squeeze (but not too tight) for me!

  3. I'm sure you have way more than 3 readers, but I'm proud to put my name in the count. Thanks for keeping us updated and entertained. I miss you Kim!

  4. Yep! I'm reading too, Kim, and I'm really enjoying it!!

  5. I would be very interested in hearing how "skilled volunteers" might be of assistance. What kinds of skills would be needed? How long would they need to be there to be of help? Can College students be of any use?

  6. Thank you for reading, ProfMudd, and thank you for your questions! Skilled volunteers – that is, individuals with demonstrated expertise in a professional field – are able build capacity of these institutions who otherwise do not have access to varied sources of professional expertise. While these engagements happen at nonprofit organizations across the globe (sometimes called pro bono consulting – the Taproot Foundation is a great example), Grameen Foundation’s Bankers without Borders deploys volunteers specifically to the field of microfinance and poverty reduction. For these organizations, common skills that are needed are finance, website management, risk management and business planning. Engagements vary from four days (please visit the blog later this week for my account of one such project!) to months, and can be done remotely or in person. College students can certainly engage in this form of volunteering, and many do! I think you’ll find this link, a portfolio of professional school pro bono programs I helped put together, very interesting: