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Financial inclusion, poverty alleviation, design thinking, technology, social entrepreneurship, strategy, mobile solutions, languages.

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• A comment on Conversation: Is microcredit a flawed idea that does more harm than good, with high interest rates and lack of proper regulation?

  Mar 7 2011: Then again, there are informal tools ( loan clubs, family, friends, moneylenders, etc.) that are usually more flexible, but completely undependable (and sometimes more expensive). The big advantage of formal microfinance is its reliability
  
  How do we know for a fact that the Poor want microfinance? Millions of clients have been using it for over thirty years. Not only do they use it, but they repay their loans, with high reliability. And it's not because of the "group pressure", but mainly because of the desire to keep access to a service you value very highly. Clients find services so valuable that they are willing to pay high loan rates and accept minimal return on savings, and return again and again for services.
  
  The problem is, any time you offer credit, some borrowers might over-indebt themselves. Which bring a major policy implication: we need to be more vigilant about over-indebtedness.
  
  To make a long story short:
  Microfinance should be regulated (subsidies, over-indebtness, etc.) in order to produce sustainable delivery year after year of highly valued services that help hundreds of millions of poor people keep their consumption stable, finance major expenses, and cope with shocks despite their low, irregular and unreliable incomes. And, MAYBE, it also gets people out of poverty.
  
  I'd suggest a couple must-read reference for those who are interested:
  Collins et al., Portfolios of the Poor: How the World’s Poor Live on $2 a Day, Princeton 2009
  Rosenberg, “Does Microcredit Really Help Poor People?” CGAP 2010: http://www.cgap.org/gm/document-1.9.41443/FN59.pdf

• A comment on Conversation: Is microcredit a flawed idea that does more harm than good, with high interest rates and lack of proper regulation?

  Mar 7 2011: So far, the story that has been told is that microcredit is an extraordinary tool that lifts poor people -esp. women- out of poverty, by increasing household income and consumption.
  
  Is is true? There are hundreds of anecdotes, practitioners opinions, but the fact is, before 2008, all the impact studies that have been conducted were quite not experimental (ie. not randomized). The problem was the selection bias in the attempts to create comparable control groups, which led to many controversies around the selected methodology.
  
  Then there was the new wave of Randomized Controlled Trials (RCTs), where a large group of participants are split into “treatment” and “control” groups at random to eliminate selection bias.
  3 microfinance RCTs have been conducted in 2009: 2 on microcredit, 1 on microsavings. The (oversimplified) results showed:
  - Some positive impact on business investment & outcome
  - No impact on household income or poverty
  - No impact on broader measures of well-being
  
  Now, before we jump in and claim RCTs prove that microfinance doesn't help, we need to know that even RCTs have their own limitations: They have to be planned before the start of lending, the initial loan sizes may be too small to make much difference to borrowers, it's hard to generalize their results and to test on a long term basis, as the control groups gets contaminated.
  
  So does microcredit lift people out of poverty? We just don’t know yet. More RCTs are on the way, but we shouldn’t expect a clear answer any time soon.
  
  Then why should we keep supporting microfinance? Because maybe the question is not whether microfinance helps people get out of poverty, but how microfinance helps people to cope with poverty.
  Because the problem with poverty is not that people have low incomes, but that these incomes are irregular and uncertain (cf. 'Portfolios of the Poor'). For the poor, financial instruments are critical survival tools, to cope with emergencies, smoothen their consumption, etc.