Circa 2012 I was presenting at a Microfinance CEO Working Group meeting about the state of academic research on microfinance. During that conversation Alex Counts, then CEO of the Grameen Foundation, suggested that I should produce a “practitioner-friendly” review of the academic research not on the impact of microfinance but on the wide variety of operationally relevant research that was largely unknown to practitioners: studies on group versus individual liability, the factors that affect repayment behavior, contract terms that affect what borrowers and savers do, etc. I thought it was a terrific idea and started on it right away. As with so many such well-intentioned but not specifically funded projects, I have finally finished that work roughly four years later [sad trombone].
One of the reasons for the long delay was that the world kept shifting. Over the last 18 months it became clear that the need was not just to document the opportunities for innovation in microfinance but to specifically address whether additional social investment in microcredit was justified given the published impact evaluations. So the final paper is quite different from what I began back in 2012. About half of it is devoted to interpreting the impact studies but also to research on subsidy in microfinance. It’s called The Case for Social Investment in Microcredit.
I believe the case for additional social investment in microcredit is strong—not despite, but because of what we’ve learned from impact evaluations. Obviously there’s much more in the paper, but here’s the one sentence summary (there’s a one-page summary in the paper): Microcredit is a cheap intervention with modest but positive effects with a great deal of scope for evidence-based innovation that could materially improve impact.
The kicker, though, is that the innovation required to boost microcredit’s impact is unlikely to happen without social investment. Pro-poor microcredit does not generate the kind of profit necessary to fund innovation. Fintech is not going to come to the rescue either, as so eloquently pointed out by Graham Wright of Microsave at the European Microfinance Week recently.
The reason the paper is finally finished is that the Linked Foundation provided some specific funding to complete and disseminate the work—but I’ll be honest, the important part wasn’t the money but the ability the grant gave them to keep pestering me about finishing it. I’m grateful particularly to Nancy Swanson and Anna De La Cruz for those nudges and for comments on early drafts. The paper also benefited significantly from comments, discussion with and ideas from Jonathan Morduch, Bruce Wydick, Chris Dunford, Dan Rozas, and Asif Dowla.
Please read the paper and share widely. And argue with me about it, publicly and privately.