Comments

Glad you liked this evaluation Joanna. I should clarify that although this evaluation was led by an ODE staff member, the team did also include a consultant, Kate Sutton, whose contribution was invaluable.

Old but evergreen cliche by Lord Palmerston applies here aptly "there are no permanent friends or permanent foes in international relations,only permanent interests".It is a master stroke by the policy makers in UK to join the new bank despite all the opposition of USA because both the pillers of UK foreign policy are crumbling-EU under its own weight and USA under threat by the evolving geostrategic and geoeconomic realities.However I agree with the writer that joining AIIB will not only be beneficial for UK but also for the bank also particularly in ensuring transparency and filling in the capacity deficit of developing countries for project preparation and implementation. Good analysis.

Thanks Bill, That makes sense -- my wife has recommended I read the book '<a href="http://www.portfoliosofthepoor.com/" rel="nofollow">Portfolios of the Poor</a>' as exemplar study of the complicated financial lives of people living in poverty. Although I haven't read it yet, from speaking to her, I get the sense that this book is a good first effort at obtaining the better understanding you speak of. Do you know if the CAVAC, and CARE and Oxfam studies are online? Beyond that, I share your hope for more sophisticated approaches to development practice, and that one day we become better at avoiding the hammer and nail dilemma. Thanks again. Terence

Terence My last comment on this blog, but I think it was a useful exchange. First, who said anything about there being a ‘conspiracy’ claim in the Duvendack systematic review? I certainly didn’t. Why does this conspiracy charge always arise whenever someone argues that hidden motives behind the declared ones might readily explain a particular issue? To repeat, Duvendack et al essentially said that the evidence supporting microfinance was simply not there, yet the microfinance industry was born nonetheless, which is why they concluded that political scientists need to try to understand “[why] inappropriate optimism towards microfinance became so widespread”. This is why a focus on the motives and actions of the institutions and individuals actually promoting microfinance is desperately required so that we do not repeat the errors the development industry made in supporting microfinance. You also point to the tiny number of studies that were somewhat sceptical of microfinance as if this disqualifies the much larger argument that the bulk of the studies were biased in supporting microfinance when the evidence did not warrant such support. Perhaps I should have used the term ‘virtually all’ on reflection, but its still a very minor point to make regardless. Second, I could have quoted at length the evidence on which consider the conclusions of Roodman and Karlan were, in my opinion, wrong and why this was so. But I provided many references to the work I did on this issue (the RRPE review of Roodman’s book and the blog posting on Governance across borders), so that anyone with an interest can go to these sources and see what I am saying, rather than me repeating it all once more on the blog. Why is this not sufficient? It will take you a few seconds to click on to my articles and minutes to read them, and then you can come back with problems in what I write, or the lack of evidence, etc. Without being at all conspiratorial in any way of course(!), it does seem as though you are very determined to rubbish my opinions without actually knowing anything about the evidence that underpins them. Third, to your claim that microfinance is not ‘true free market economics’. I tend to agree, and those on the extreme fundamentalist right have sometimes attacked microfinance for being subsidised (initially) and anyway simply too interventionist, as <a href="https://mises.org/library/microcredit-or-macrowelfare-myth-grameen" rel="nofollow">here</a>. But the core increasingly commercial principles of microfinance as it emerged after its initial links with non-governmental organisations were abandoned under USAID and World Bank pressure – self-help, individual entrepreneurship, no need for subsidies, no need for state intervention or the exercise of collective capabilities by the poor to escape poverty, etc – were all core free market (neoliberal) principles strongly espoused by the development industry under pressure from the main neoliberal-oriented governments (the USA and UK in particular). This was why microfinance bloomed. There was certainly no real evidence at the time, as Duvendack et all show in retrospect, to underpin the huge belief in microfinance. This is not a conspiracy, but simply the usual deployment of state power to bring about a favoured outcome. Milford

Hi Terence A problem with much of the research on microfinance (and to a certain extent with microfinance itself) is that it is promoted and implemented as a stand alone activity. Unfortunately, microfinance, in any of its myriad forms, is a one-dimensional approach to development. "Getting out of poverty", especially for the very poor and marginalised, is a complex process and requires a much bigger toolkit than just availability of cheaper money. I think this is pretty well understood by people who work with poor rural populations, and the results of the recent research on the poor performance of microfinance comes as a no surprise to most development practitioners. A better understanding of how poor rural households use their money, assets and resources, including loans, is needed. When I worked in this area in Cambodia, it was very hard to find any relevant research. The Australian aid program, through CAVAC, did some preliminary work with poor households on incomes, and CARE and Oxfam commissioned a large study on rural debt in the wake of the 2011 floods. I am hopeful that future programs that target poverty more effectively will emerge. Microfinance may be a part of this, but for the moment, the situation reminds me of the saying that if you have a hammer, every problem looks like a nail.

Hi Milford, First, you write: "When you read the systematic review by Mare Duvendack et al you will see it contains lots of references to impact evaluations that were undertaken using faulty methodologies, weak designs, little data, etc, etc, yet strangely ALL came out massively in favour of there being a positive impact from microfinance, with the main MFIs being most enthusiastic of all. That counts as very serious bias." I have now quickly read the systematic review. Throughout the term 'bias' is only used in a technical sense (typically selection bias), and while it is true that the authors note the poor quality of the evidence they reviewed, they themselves do not conclude that this is a product of a conspiracy to foist a particular view of economic development on the poor. Indeed (unless I missed it, in which case please point me to actual pages) while they do go so far as to actively caution against more microfinance on the basis of such a flimsy evidence base, they do not offer a systematic explanation of the poor quality of the work reviewed (I'm happy to offer some suggestions though: vested interests and ideology would be on the list as a possibility, but so too would be publication bias and the difficulties of conducting gold standard research in developing countries). Note too that you are incorrect to claim that all the reviewed studies in the systematic found strong positive impacts from micro-finance -- some did not. Second, you write: "You then quite ludicrously compare my brief blog comments, written to relax a little during a break from my regular academic and consulting work, with ‘the papers (not to mention Roodman’s book) (that) are careful and empirical and provide the reader with evidence and the tools for assessing whether their evidence is convincing’." I appreciate that blog comments are something that are, by necessity, typed in a hurry. But you have made very serious allegations about David Roodman and Dean Karlan, on the basis of no evidence whatsoever. If the evidence in question is in your papers or book, why can't you provide it in your blog comments here? If you don't have the evidence, then please cease making personal attacks in which you speculate on other researchers' motivations. I don't have a problem with more general debates about the intersection of research, knowledge, and power, but personal allegations need a basis in reality. Even more general blog comments come across as more convincing when provided coupled with evidence. I appreciate your attempt at providing the Duvendack systematic review, and your own book review in this spirit (and encourage readers to have a look), but in the case of the systematic review, as noted above, it still doesn't provide a basis for your boldest claims. Third on neo-liberalism, My complaint about the use of this term is threefold: 1. For many on the left, it often seems to serve as a magical form of punctuation that can be placed in a sentence to serve as a stand in for an actual argument. i.e. "X's argument is typical neo-liberalism". (maybe, but so what) 2. The term is also used as a catch-all for "bad stuff". Which, once again, doesn't strike me as helpful. To take the specific case of micro-finance. It isn't actually a free market approach to development (a true free market economist would believe that if the loans had use the money would have already been provided by efficient financial markets and taken up by those who needed it). And a sensible free market economist could make a good argument against micro-finance along the lines of: "when poor government policies are the main impediment to market led growth in a country it makes no sense to provide the poor with credit (and therefore debt)". 3. Even when neo-liberalism is restricted to something like a Washington Consensus suite of policies, I still don't think it can really be argued that this particular school of thought has failed per se. Some aspects (financial market deregulation, austerity during certain types of financial crises) surely have. But in some areas the results are more ambiguous (the outputs of privatisation vary from country to country and industry to industry). And in some areas the results seem net positive (an element of macro-economic stability). However, perhaps my complaints about the use of the term are unfairly levelled at you (although you're clearly a fan of the word). In which case apologies. Also, apologies in advance -- I have a hectic week and won't have much time to write blog comments. Thank you for the offer of sharing a pdf copy of your book. Terence

Bob: Thanks for this reminder. It's true that the IFC model probably cannot be 'reformed' sufficiently to meet the needs of the Pacific island countries without creating inefficiencies, and therefore that there is a role for a DFI operating in the sub-IFC range there. The government has so far announced two initiatives intended in different ways to increase private sector investment in the region: the SME-oriented <a href="http://adb.org/projects/details?page=details&proj_id=47373-001" rel="nofollow">Pacific Business Investment Facility</a> and, just recently, <a href="https://innovationxchange.dfat.gov.au/project/seed-pacific" rel="nofollow">SEED Pacific</a>, which aims to encourage larger businesses to invest (more on the latter next Monday, on the blog). Both these initiatives might well prove to be useful, but they are wholly or heavily reliant on grant funding and, related to that, quite limited in scale. For readers: Like Newton and Leibniz, Bob McMullan and Jim Adams hit upon the same idea independently. The former's proposal was made in a Devpolicy blog, <a href="https://devpolicy.org/development-finance-company-for-australia-and-new-zealand-20140117/" rel="nofollow">here</a>. The latter's was part of his 2013 Harold Mitchell lecture, <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2357288" rel="nofollow">here</a>.

Robin, You will recall that Jim Adams and I both advcoated a joint Australia/New Zealand DFI to focus on the Pacific. Therefore I welcome your consideration of the options. The problem with focussing all our efforts on the IFC is that they, quite understandably, have a broader focus and need a larger scale of investment than the Pacific Island states can sometimes generate although they have done some very good work in the Pacific. If the ADB had an effective private sector arm that might be an option but I believe only Australia nad New Zealand are likely to give the sustained attention to the Pacific which a successful DFI would require. The Austrians just set up a DFI funded by their EFIC equivalent but operating separately. This might be an option in difficult budgetary times although it is not ideal.

Thanks Paul. While ensuring the development quality of investments would be central, and was not always well done under DIFF, A DFI of the kind described above would not be the kind of animal that DIFF was. DIFF gave EFIC access to aid funds in order to soften the terms of its loans to developing countries, with those loans extended to governments and tied to the procurement of Australian goods and services. A DFI, by contrast, normally deals with the private sector rather than governments and finances or insures investments rather than just procurements (hence the fact that the US has both the Ex-Im Bank and OPIC). The question of tying, while a live one, tends to be rather moot in practice, as it is in the case of funding for donor country NGOs and at least some scholarships for tertiary study in donor countries. From a development perspective, it would certainly be better if donors deferred to IFC in this area, with appropriate policy and procedural reforms and oversight. However, the fact that we see a plethora of bilateral DFIs suggests that the market development perspective also looms large. There is a reasonable argument that putting ODA in the picture could leverage significant development impacts from the operation of such DFIs, but whether it would actually do so depends on how things are arranged at the outset.

Terence When you read the systematic review by Mare Duvendack et al you will see it contains lots of references to impact evaluations that were undertaken using faulty methodologies, weak designs, little data, etc, etc, yet strangely ALL came out massively in favour of there being a positive impact from microfinance, with the main MFIs being most enthusiastic of all. That counts as very serious bias. Indeed, as the authors contend, it was because of such bias that the neoliberal-oriented international development industry managed to raise up the microfinance model into a development policy juggernaut; that is, on the basis of an entirely missing evidence base an entirely new intervention became possibly the most important development policy intervention of all. The authors conclude that the only thing that can explain such an amazing story is the politics, not the economics. As many in the development agencies (the World Bank refuses to use the phrase, period), you appear to baulk at the use of the term ‘neoliberal’. Why? It is a standard academic descriptor of a particular market-driven worldview/project and it usefully helps to differentiate development policies based on other worldviews/projects (social democracy, democratic socialism, nationalism, etc) from those based on neoliberal principles and imperatives, as policies are in the World Bank, IMF, IAB, ADB, WTO, EuropeAID, USAID, DFID, etc. You then quite ludicrously compare my brief blog comments, written to relax a little during a break from my regular academic and consulting work, with ‘the papers (not to mention Roodman’s book) (that) are careful and empirical and provide the reader with evidence and the tools for assessing whether their evidence is convincing’. Maybe read some of my books and major papers first before making such a statement? You can find some of my main papers here: http://ssrn.com/author=2022134 and I’ll send the pdf of my ‘Why doesn’t microfinance work?’ book to you if you are genuinely interested. As to the evidence about Roodman’s book and its willingness to please the private sector funding bodies that supported and promoted his work, let’s get real here. It is beginning to happen all the time in academic circles, and, in fact, 'buying' academic support has always happened, especially in the US academic economics community: http://www.amazon.com/Economists-Powerful-Convenient-Distorted-Economics/dp/0857284592 so this is nothing new. It is therefore one obvious explanation – I would argue the main one - that can logically account for Roodman's strange book, a book that, as you say, first makes the important claim that ‘microfinance does not work to reduce poverty’ but then goes on to make a series of spurious arguments to the effect that we should nevertheless persist with its deployment! Roodman is a very smart cookie indeed and when he makes illogical twists and turns like that, which even such as Dean Karlan have called him out on (see my review of Roodman's book in RRPE), there must be some reason to account for it. Finally, to the issue of ad hominem attacks, it perhaps feels like that to you, but it is not. I am merely challenging the ideas, assumptions, outputs and methodologies of many of those working in the microfinance industry. However, because such factors are also wrapped up in other more messy things like the funding of research, the politics of development, power issues, and so on, it is not easy to separate the two sides. But your overarching idea here, that we should not challenge the motives and integrity of academic researchers, is simply wrong: finding out why someone writes what they write is often as important in explaining something as what they write. Unfortunately, as big business and Wall Street further and further insinuates itself into the academic community, especially in the USA and UK, we are likely going to see even more such situations. Milford

I am sure that the visitors to Tonle Sap lake believe what they think they saw. However a couple of days in Siem Reap does not give a true picture. 4 years ago on a holiday,I visited a small, very poor orphanage. Today I sponsor the same orphanage except we now care for 40 children, 6 paid staff and rent a comfortable building... If you could see some before and after photos you too would see how far these beautiful children have come.I am very grateful to any tourists who donate rice (we eat at least 200kgs a week) and 35 children go to school 6 days a week...See Heart and Love center Siem Reap....Helen Mclean, Victoria Australia

Hi Robin Possibly a very interesting development. Three quick comments. First, Australia’s experience with a mixed ODA/EFIC loans arrangement was of course the Development Import Finance Facility. In addition to remembering the lessons from previous evaluations of that scheme, it could be useful to have a new evaluation on the sustainability and development impacts of supported activities – such as the $60 million White Industries Piparwar coal mine in India and the $140 million Transfield Steel Bridges programs in Indonesia. Second, before creating any new institution, it is important to consider if a strengthened partnership with the World Bank’s International Financial Corporation or some similar entity may produce better outcomes. Always nice to have a new institution – but they are expensive and the skill sets required are demanding. Finally, just to note that EFIC has used its national interest provisions to assist with elements of development beyond simply export promotion. Its USD350 million of financing support to the PNG LNG project is a notable example. Its USD90 million risk sharing agreement with the Asian Development Bank has development linkages. Of course, these activities also have benefits for Australian trade facilitation, and balancing competing objectives will be a major challenge, especially with the commendable policy of untied aid. Paul