New evidence on microfinance

It’s easy to see the appeal of microfinance. The idea of loaning small amounts of money to individuals or families in developing countries to help them overcome credit constraints makes sense. I always thought it was a good one. The trouble is, in aid, ideas that seem good can still be misplaced. And this has increasingly appeared to be the case with microfinance.

Some initial studies suggested that it did considerable good, but then came David Roodman whose careful analysis (book, blog) showed that the reality of microfinance was more complicated than advocates (and some early research) had suggested. And post Roodman, the only sensible conclusion about microfinance appeared to be that, rather than pushing ahead with a lot more giving of this sort, we should focus on trying to learn if and when the approach worked.

In this vein the American Economic Journal has devoted its January issue to publishing six methodologically sophisticated studies of the impacts of microfinance. The individual studies are behind a paywall but the overview article by Abhijit Banerjee, Dean Karlan and Jonathan Zinman is available online here [pdf] (and a great vox pop summary is here [pdf]). The studies use gold standard methods (variants of Randomised Control Trials – RCTs) and cover six different countries. At the risk of oversimplifying (read the summary paper!) the two most important points for an aid practitioner are that the studies suggest microfinance typically does not offer recipients a pathway out of poverty, but that this is not because recipients squander the money or don’t try. It’s just that the constraints to development are elsewhere. To be clear, this isn’t an entirely negative finding. Even gold standard papers have limitations, as the authors note, and there is some evidence of modest benefits, as well as some suggestion that a minority of borrowers do benefit more significantly.

Nevertheless, the findings fit with the fact that most recent academic research has not been kind to microfinance. Which leads to another puzzle: despite this evidence you can still find numerous people in the world of development who believe that microfinance works. Why?

Conveniently, another recently published journal article offers two good explanations for the discrepancy, both which offer interesting methodological and practical insights. The paper in question, using data from Nepal, by Ram Rajbanshi, Meng Huang and Bruce Wydick, can be found in its final published form here (and in an ungated form here). The good news is that neither of the explanations it offers suggest that proponents of microfinance are dishonest. And, at the same time, the findings are fascinating.

The first explanation as to why proponents of microfinance claim there are benefits is that practitioners working in the field really do often see people’s lives getting better after they are given microcredit. The trouble is that the relationship practitioners observe is, for the most part, spurious and driven by the fact that borrowers are (quite sensibly) more likely to take up loans when external circumstances are favourable. And, ultimately, it’s these improving external circumstances that drive most of the subsequently observed improvements in welfare, not the loan itself.

The second explanation the paper provides is that many (but not all) of the RCTs previously conducted on microfinance have focused on areas where some microcredit has already been available prior to the study and its ‘treatment’ loans. The methodological problem here is that the types of people who could most benefit from microfinance have usually already managed to access loans from existing NGOs and/or private lenders by the time the RCT arrives to offer new loans to test the efficacy of lending. And, obviously, if the people most likely to benefit from microfinance already have it when a study starts, it is quite possible that RCT-type studies will under-report the benefits of microfinance as study participants will be drawn from a population whose potential to benefit is less.

Intriguingly, both of these explanations pull in opposite directions: the first highlights flaws in the simple before and after comparison approach, which has produced the sort of evidence often favoured by proponents of microfinance; the second suggests a weakness in RCT-type evidence, which has been less flattering to microfinance. Which finding matters more? Here’s how the authors summarise the magnitude of the two findings:

[W]e estimate that approximately 3/4 of the impact testified to by practitioners after taking microfinance appear to be something akin to an optical illusion, driven by correlated unobservables. But we also find that the approximately one-fourth of this “apparent impact” that remains is nontrivial [that is, the sort of benefit hidden from most RCTs].

The first explanation is, in other words, the most significant one. But the second effect is real too. Taken together the most recent research would seem to suggest not only that we need to be careful in believing what advocates have to say about microfinance, but also in leaping to conclusions that it has no benefits whatsoever. The real task from now on will, I think, be trying to determine when microfinance can help, and whether it is the most appropriate form of help in any given context.

Terence Wood is a Research Fellow at the Development Policy Centre. His PhD focused on Solomon Islands electoral politics. Prior to study he worked for the New Zealand Government Aid Programme.

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Terence Wood

Terence Wood is a Research Fellow at the Development Policy Centre. His research focuses on political governance in Western Melanesia, and Australian and New Zealand aid.


  • Thanks for the links to this recent research. The notion that lack of access to capital is all that prevents hard-working poor households from achieving prosperity appeals to many people from both sides of the political spectrum. The precise definition of “microfinance” is also hard to pin down. It can encompass everything from rural lending arms of commercial banks to small scale savings groups or community revolving funds. The objectives of commercial lenders are completely different to that of a savings group, so it is rather unfair to place them all in the same basket. Unfortunately many donors, including Australia, don’t seem to be able to differentiate.

    In a place like Cambodia the commercial microfinance sector has 40-50 different players, who mainly provide loans to farmers engaged in commercial production. This sector has attracted an alarming increase in private funding in recent years, along with the usual cheap credit from development agencies. Rates of return are high, much higher than in the recession-hit US, for example, and this is reflected in the amount of money available for what are probably sub-prime loans. While Cambodia’s economy is growing, repayments will not necessarily be a problem, but if there is a drought or other external shock, the impact will be similar to that of India in recent years, where the reputation of microfinance has taken a hit.

    Unfortunately these bad lending practices by commercial providers have the ability to give the whole sector a bad name. Microfinance definitely has a place, and is particularly good where it displaces, or provides an alternative to, predatory lending. Savings groups also have great potential as a social protection mechanism, and can improve household and community resilience, and the money stays in the community. But as the literature points out, these are not pathways out of poverty. Poor households in rural areas will always have a need for loans – it’s often part of the annual agricultural cycle. Any “livelihoods” or “rural development” program funded by donor money should at least include some means of reducing the cost of loans for these poor farming households.

    • Hi Bill,

      Thank you for your comment. You make a very important point, I think — that there is considerable difference between purely commercial micro-lenders, micro-lenders who offer subsidised/discounted loans (and whose motives aren’t predatory), and other tools such as savings groups.

      To be clear, the studies I’ve linked to are not focused on savings groups (or at least primarily focused on undertakings that are based on savings groups). And as such this post shouldn’t be taken to speak in anyway to the efficacy or not of such groups.

      Your point about subsidised microfinance as a means of undermining predatory lending very interesting point (thank you!). I guess, for me, something akin to this was one of the more interesting elements of the Rajbanshi et al paper was the point they made about a range of micro-credit operations usually being present in any one location, and how this makes it hard to gauge the impact of subsidised (or at least non-predatory) micro-credit efforts (the type that usually get evaluated).

      Thanks again.


      • 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.

        • Thanks Bill,

          That makes sense — my wife has recommended I read the book ‘Portfolios of the Poor‘ 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.


          • I’m not sure they have been publicly released. If you write to CARE Cambodia – and for CAVAC maybe through DFAT/Aid section at the Embassy – they will send you a copy. At one stage, CARE had the debt report available on their website, but it doesn’t seem to be there now.

  • Terence

    An interesting piece but your apparent determination to provide a mainstream explanation for the continued existence of microfinance in development policy means that you seriously confuse the reader on many of the key issues.

    First, Roodman’s contribution was simply to echo what many others had been previously announcing without anyone in the development industry taking any notice, which was that microfinance does not work. My own contribution on this issue came out in early 2010 and, among other things, thanks to much publicity on Roodman’s blog (he ill-advisedly tried to smear the book on his blog, but everything I said pretty much turned out to be 100% accurate), it was turned into a modest best-seller and it became the recommended critical book on very many courses involving a discussion of microfinance.

    Roodman then went on to say that no matter his central negative conclusion, microfinance nevertheless still had much to recommend it and we should not abandon it! This part of his argument is probably what he was paid by Mastercard Foundation and CGAP (his financial sponsors for the project) to make, but it was a simply ludicrous argument, as I show here.

    Second, you completely ignore the obvious when trying to explain the reason why microfinance is persisted with in spite of the total lack of any evidence it actually works (and the growing amount of evidence that it has been an historic disaster for the poor). The evidence here is overwhelmingly that it is the POLITICS of microfinance that counts. Microfinance answers to so many of the imperatives of the neoliberal policy-making establishment based in the development industry that it simply cannot be phased out no matter what negative impact it makes. Self-help, individual entrepreneurship, market-based lending, market-driven solutions to poverty, need to avoid engaging the state in development, etc, etc, are all core imperatives in the neoliberal policy-making establishment and all are effectively validated by the (failed) microfinance model. Hence, the support for microfinance, right from arch-neoliberal Hernando de Soto onwards. The development industry has even recently taken to repackaging the microfinance concept under the heading ‘financial inclusion’ in order not to have to phase it out as a result of its zero impact factor. Who can resist the argument that the poor need to be ‘included’ in the financial system? With a co-author, I have written about this specific issue here.

    Third, you try hard to find some goods news with the various studies reported on by one-time advocates of microfinance Dean Karlan and others without entertaining at any time the even more obvious possibility that perhaps they actually over-stated the impact in coming to their mildly critical conclusions. The motive here would be not to risk losing the funding they require for their own personal research and for the many independent bodies they have established that rely on generous development industry funds to operate. Indeed, this is what I and many others think took place, such as I argued here.


    • Hi Milford,

      Thank you for your comment.

      However, I think you do yourself no favours in the way you attempt to critique David Roodman and Dean Karlan. Both are careful empiricists and do not deserve the aspersions cast their way. In Roodman’s case the fact that he qualified his critique seems very sensible to me. In the complex world of development it is very reasonable to assume that effects may be heterogeneous across locations, across populations within locations, and across programme designs.

      What is more, you accuse Roodman of trying to smear you (readers can make up their own minds: the relevant Roodman post is here) before alleging that Roodman qualifies his conclusions regarding microfinance because “[t]his part of his argument is probably what he was paid by Mastercard Foundation and CGAP”. Do you have any evidence whatsoever for this allegation? Likewise do you have any evidence that Dean Karlan and other authors have reached particular conclusions because they have been motivated by funding considerations? It is one thing to disagree with others findings’ but it is something else altogether to make accusations with regards to their motives in the absence of actual evidence.

      Finally, with regards to the only actual substantive point you make in your comment. For what it’s worth I think it is possible that ideology does drive some people’s continued enthusiasm for microfinance in the face of evidence that it is, on average, not particularly effective. But I doubt this is the only reason (not everyone who has a different take on development from you is necessarily one of these horrible neo-liberal types that you write so heatedly about) and I would urge you to pay attention to the Rabanashi et al paper that I linked to: it provides a pretty good explanation (and some evidence) of how people can overstate the benefits of micro-finance in good faith as a result of simple before and after comparisons.

      Kind regards


      • Terence

        An interesting if a somewhat unfair response (‘horrible neoliberal types’…). Anyway, a critique often involves addressing the work of high-profile people, but if I critique I always present the evidence underpinning my critique. Roodman’s critique of microfinance succeeded in one respect, but failed at multiple levels, as I wrote in my review of his book.

        Many people I have talked to, including one former CGD employee, broadly agree with me that his ‘review’ of my book was nothing of the sort: it was a carefully calculated smear attempt designed to kill my book. His debating points were all about typos, grammar, a missing reference, etc, while he completely refused to address the main arguments presented in my book, a book that has since been proven correct in almost everything it argued, as even very high-profile practitioners now openly accept.

        Perhaps, as several people suggested to me, Roodman was miffed that I had taken the wind out of his sails by declaring well before his own book came out that microfinance was a failure? I don’t know. But the individual clearly being smeared surely has a right to respond, don’t you agree?

        As to the issue of who funded Roodman’s work, I think it is quite naïve to automatically assume, as you seem to do, that all researchers/evaluators produce independent work totally uninfluenced by those who fund their work. This is wrong. You must have seen the Oscar-winning documentary ‘Inside Job’ for example. I also know full-well from my own work this last 20 years evaluating SME and local development programs for many of the big development agencies, that evaluations and evidence are distorted all the time. So my point that his ultimately very strange and contradictory conclusions were suspiciously almost exactly what his funding body would have wanted is a valid point to explore in order to explain what he did there. A little later, moreover, many other long-standing evaluations and evaluation evidence was exposed by Maren Duvendack et al in their systematic review of the evidence on microfinance, which found a lot of deliberate bias by MFIs and their contracted academic researchers all in favour of coming to a positive conclusion when the evidence for this was simply not there.

        As to my considered view that the impact evaluation by such as Dean Karlan and others are suspiciously biased on the upside, I already presented my case in the blog site I quoted in the earlier post. I think it is a strong case, and others actually working in microfinance have gone even further than me on this issue, such as Hugh Sinclair.

        In fact, there is actually a long history of individuals and institutions in the development and academic community deliberately misrepresenting the evidence, including their own research, in favour of coming to politically-acceptable outcomes or not to upset a funding body or to ingratiate themselves in with a corporation. One would have to say here, in fact, that the World Bank are particularly guilty on this point, of often grossly misrepresenting and distorting the evidence in favour of promoting a particular political viewpoint and agenda, as Fine et al showed in a brilliant book from a few years ago.

        So I am not saying anything at all radical here.

        Finally, to your last point. I am not saying that the political ideology point explains absolutely everything about why microfinance became so popular in spite of the total lack of evidence that it actually works, but it certainly explains almost everything (to misuse a phrase used by Paul Krugman). Anyway, I found the Rabanashi paper interesting, but ultimately weak and rather strange for addressing an important issue without mentioning the elephant in the room issue, the political-ideology motive for distorting the evidence to the upside.


        • Hi Milford,

          Thank you for your continued engagement.

          To start on a positive note: thank you for the link to the DFID systematic review – I am looking forwards to reading that. In the meantime though, can you please provide me with particular page numbers where the authors show evidence of ‘deliberate bias’ rather than methodological flaws? I read no suggestion of this in the executive summary.

          Beyond the DFID review (which does look excellent, thanks again) I’m open to persuasion, and certainly willing to accept that ideology and vested interests shape development practice and the world of development thought far more than they should. (In the particular case of ideology, this is not, needless to say, a problem limited to the right, hence my jab at your persistent use of the term neo-liberal as if it were some form of data point).

          However, the reason why I found the papers that I linked to in this blog post useful, and why I do not find your comments persuasive, is that the papers (not to mention Roodman’s book) are careful and empirical and provide the reader with evidence and the tools for assessing whether their evidence is convincing. You on the other hand (in your blog comments at least – the book review you linked to last night was more interesting) offer nothing more than speculation based on evidence which isn’t transparent and which cannot be assessed by a neutral reader i.e. “Many people I have talked to, including one former CGD employee, broadly agree with me that his ‘review’ of my book was nothing of the sort: it was a carefully calculated smear attempt designed to kill my book.”

          Similarly, when you write — “As to the issue of who funded Roodman’s work, I think it is quite naïve to automatically assume, as you seem to do, that all researchers/evaluators produce independent work totally uninfluenced by those who fund their work.” — the big problem is that, while you are correct to suggest that funding can shape findings, you provide no evidence whatsoever that this was the case with regards to Roodman’s work (work which, you will recall, was ultimately negative with regards to its assessment of microfinance). You have made very serious allegation on the basis no evidence whatsoever.

          I suspect that if we were to have a chat about development over a beer at a pub one day, we would find a lot to agree about: I do not think unimpeded markets are particularly wonderful tools for fostering economic development (let alone human well-being); I suspect industrial policy is a necessary but not sufficient pathway to development; I’m a micro-finance sceptic; and I think aid quite often goes awry as a response to the ideology of the day, not to mention the self interest of donors.

          But in this blog comments thread at least, you aren’t persuading me at all — mostly because you are engaging foremost in unsubstantiated ad hominem attacks against people you don’t like. And because your critique comes across (perhaps unintentionally) as rich in its own particular dogma.

          Thanks for engaging though. And hopefully one day we might be able to have a more amiable chat away from the hurried world of blog comments.


          • 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: 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:


            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.


          • 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
            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 here.

            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.


          • Hi Milford,

            Sorry for my slow reply – last week was hectic.

            To be clear, I’m not calling you a conspiracy theorist (of the ‘George Bush ordered 9-11’ type) and yet you are alleging conspiracy everywhere, from David Roodman conspiring with CGD’s funders to write a less critical book, to USAID and the World Bank seeking to impose microfinance on developing countries for the benefit of donor country vested interests.

            Likewise, you allege that the DFID funded review finds that the evidence base for microfinance was lacking. Agreed. But all sorts of development work goes ahead with an insufficient evidence base. Sometimes this is the by-product of vested interests conspiring to shape policy (this certainly seems to have been an issue back home in New Zealand for aspects of the the NZ aid programme in recent years). But it can also be a by-product of mistaken beliefs and the zeal that so many people (not just of a free market bent) bring to matters development.

            As for evidence — you have provided a lot of links. But nothing to substantiate the claims that really need substantiating at this point in time: your allegations against Roodman and Karlan. The DFID funded review, Roodman’s book, and the papers I linked to above all benefit from the fact that the evidence for their arguments is clearly accessible. Sure, it’s harder to do this when writing a blog comment, but not impossible, as I hope readers will agree on the basis of my initial blog post.



          • Hi Terence

            I was not planning any further comment on this blog posting, but your breathtakingly naïve or else deliberately misleading – can’t decide which it is – reply has changed my mind. You state, yet again, and this time with even more force, that I am claiming conspiracy and you repeat your view that, essentially, whatever any of the high-profile researchers and institutions say is the reality, then this is the reality, period. I confess to being amazed at how hard you are trying to rubbish my views to the point where you make such silly statements about conspiracy.

            The fact is – and I think you MUST know this – research results are skewed all the time in the service of hidden agendas. Are you really quite unaware of high-profile researchers like James Ferguson and James Scott who pretty convincingly show that a yawning gap generally exists between the declared objective of any particular policy intervention and the hidden political agenda that lies behind that particular policy intervention? You seem unaware, or else unwilling to concede in your current position, that all of the big development agencies have political agendas and often aggressively pursue these agendas irrespective of the facts and that this very often involves manipulating research results, (or asking the researchers to do it for them) in order to get support for the policies they were always planning to put into practice anyway. Have you not seen ‘Inside Job’? Was it a conspiracy that so many academics took big bucks to write wrongly supportive reports for the Wall Street’s big banks, or was it simply an accident on their part?

            In nearly all my postings here I also linked to my own research outputs in which I try to make my case, yet you ignore this completely, clearly don’t consult any of my outputs, and then continue to state that I provided no evidence. I am stumped as to how to respond to this tactic. Is this really what a blog should be doing? I thought it was all about constructive debate and the willingness to listen to heterodox views and fairly represent these views to the audience.

            I am so reminded of my time in Yugoslavia in the late 1980s as a young PhD student collecting data on small business policy there, and having discussions with many visiting Russian economists in the same dormitory. So many of them argued that central planning was basically fine, just had a few problems around the edges, and the evidence they quoted for this view was the large amount of supportive research emerging from the research units attached to or funded by the Communist Party. My view, and others there, was that this research simply could not be trusted since everyone knew that the incentives to manipulate the data in order to come up with supportive views – foreign trips, nice apartment, access to hard currency, career progression, etc – were simply so strong. Moreover, there was also a lot of quality research to show that just such a scenario was indeed playing out and that the incentives did pervert the course of research in Russia in order to build up a false picture of the success of central planning. And yes, I was called a conspiracy theorist for suggesting such outrageous things were very likely going on and that we needed to be very careful what some researchers were saying and why! I guess I can’t win, then and now……


          • Hi again Milford,

            “The fact is – and I think you MUST know this – research results are skewed all the time in the service of hidden agendas.”

            Research results are skewed some of the time (if it really was all of the time we should cease to pay attention to any research — be it Scott’s, Ferguson’s or your own). And even then, only some of the time is the bias a by-product of vested interests, rather than ideology and the other issues I’ve listed above.

            And I haven’t ignored the research you’ve linked to — I’ve simply pointed out that none the work that you’ve linked to which I’ve had time to read provides evidence to back up your allegations against Roodman and Karlan, or your sweeping claims about the motivations of people promoting micro-finance. Your book might — I’ve only read your review of Roodman’s book (which didn’t), but you’re not doing a great job of convincing me to take the time to read your book. It’s a busy world and if you can’t provide good evidence here, then you’re not going to persuade me at least. Perhaps other readers will feel differently though.

            All the best


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