October 2, 2012
Highlights of David Roodman's Microfinance Open Book BlogBy Thea Garon
David Roodman’s conversation with Jonathan Morduch is coming up tomorrow. If you haven’t read David’s book yet, you should. But we can be realists. You probably don’t have time to buy and read the whole book in the next 36 hours. So, here’s a quick cheat sheet of some highlights from David’s blog over the past few years. Reading these posts will get you up to speed (but you should still read the book!).
Perhaps David’s most famous post is an October 2009 post titled “Kiva is Not Quite What it Seems,” about the online microlender, Kiva. The post kicked off a wide-ranging debate about the role of transparency in the framing of NGOs’ operations and ultimately changed the way the organization presents itself. In the post Roodman explained there was significant divergence between Kiva’s rhetoric and marketing and how it actually did its work. Kiva implied that when a user donates money online, the money went directly to a specific borrower whom the user chooses. Roodman explained however, that less than 5% of Kiva’s loans are actually distributed after they are funded. He concluded that “the person-to-person donor-to-borrower connections created by Kiva are partly fictional.” Roodman’s thoughtful critique has since caused Kiva to reevaluate how it portrays itself and to become more transparent about its lending process.
Roodman also tackled the issue of lending transparency in a September 2010 post, “Quick: What’s the Grameen Bank’s Interest Rate?” In this post, Roodman points out that even though the Grameen Bank claims that its interest rate is a flat 10%, this rate is misleading because it fails to incorporate additional costs of borrowing such as upfront fees and “forced savings” in the form of collateral. Roodman concludes that Grameen’s clients are not properly informed of the fact that their supposed 10% interest rate actually amounts to 24%. [This statement is incorrect: Grameen actually claims that loans have a 10% interest rate on a "flat basis" which the bank's website correctly notes is equivalent to a 20% rate. In a subsequent post, Roodman concludes that these rates are fairly disclosed and that Grameen is "a model of the transparency it preaches to others."]
In a related post, Roodman considers whether Grameen and other microlenders in Bangladesh, might be heading for a fiscal cliff. He mused that the years of rapid growth and accelerating declines in key indicators of delinquency are alarmingly similar to the lead-up to the global financial crisis. With the help of some useful figures and graphs, Roodman tried to assess whether the bank is headed for trouble. Of course, those issues are now subsidiary to the Bangladesh government’s takeover of the bank.
A few more highlights:
In “Is Microfinance A Schumpeterian Dead End?” Roodman explores the notion that microfinance is a “Schumpeterian Success,” an example of “aid building a thriving, disruptive industry that enriches the institutional fabric of nations.” In a September 2011 post, Roodman evaluates the potential of randomized control trials (RCTs) to assess the impact of microfinance. He concludes that while results from RCTs may not be generalizable, RCTs conducted in diverse locales hold more promise than large-scale non-randomized evaluations. In the post, “Rossi’s Rules,” Roodman reviews the sociologist Peter H. Rossi’s characterization of evaluation efforts as a set of “metallic laws.” With regard to microfinance impact evaluations, Roodman is partial to Rossi’s ‘Stainless Steel Law of Evaluation” which states that “The better designed the impact assessment of a social program, the more likely is the resulting estimate of net impact to be zero.” And, in a particularly enlightening March 2011 post, Roodman evaluates the impact of microfinance on development in light of three definitions of “development” – development as proven poverty reduction, development as freedom and development as industry building.