Friday, January 28, 2011

Pros and Cons of a new Microcredit Summit Campaign report

A new study from the Microcredit Summit Campaign says microcredit has helped 1.8 million Bangladeshi families out of poverty. The new study has its share of both fans and critics, and we found both in a couple of different stories today.

First the con viewpoint... from Sify we learn about the experts who rejected the study. 

Dr Qazi Kholiquzzaman Ahmad, the Chairman of the Palli Karma Sahayak Foundation (PKSF) that loans money to microcredit agencies in Bangladesh, said his studies in 2006-2007 showed that only seven percent of micro-borrowers were able to rise above the poverty line.

"In this latest study, only ten percent of people have moved up, leaving the other 90 percent where they are. We cannot conclude that a whole lot has been achieved," he added.

In the recent past, serious charges have emerged about microfinance borrowers taking on multiple loans and too much debt, coercive collection practices by microfinance staff, and even suicides among borrowers who were unable to meet their payments.

India's multi-billion dollar industry was on the brink of a mass default until all major banks in the country agreed to continue lending to microfinance firms.

Meanwhile, Vancouver Sun writer Dan Cayo applauds the results of the study.

The worst floods ever in one of the world's most flood-prone countries, a serious food crisis, governance problems ranging from corruption to incompetence to instability, Bangladesh has been no stranger to hard times over the past two decades.

Yet during this difficult period for what has long been one of the poorest countries on earth, 1.8 million families whose earning power was bolstered by microcredit were able to cross the $1.25-a-day threshold that defines abject poverty. By doing so they dragged nearly 10 million of the country's 160 million people up to a level of living that's at least a little bit better.

A report documenting these numbers, prepared for the Microcredit Summit Campaign, doesn't claim direct cause-and-effect between microcredit and this solid progress.

In other words, some of these people -- maybe all of them, though I very much doubt it -- might have moved beyond the worst of poverty anyway.

Read more:

Finally the press release from the Microcredit Summit Campaign gives us more details on the report's conclusions. You can download the full report from this link.

Nearly 2 million Bangladeshi households involved in microfinance — including almost 10 million family members, on net — rose above the US$1.25 a day threshold between 1990 and 2008. These figures were released in a report by the Microcredit Summit Campaign today.

A survey of more than 4,000 Bangladeshi households, led by Sajjad Zohir of the Dhaka-based Economic Research Group, found that a dramatic number of families moved out of poverty between 1990 and 1997, but that a massive flood in 1998 and the food and fuel crisis of 2008 were the likely cause for millions of families to fall below the $1.25 a day threshold during that later period. Even with these setbacks, on net nearly 10 million people rose above poverty.

The Microcredit Summit Campaign report closely mirrors the findings of official country-level research in Bangladesh with the national Household Income and Expenditure Survey (HIES) estimating that 10.62 million Bangladeshis left hardcore poverty between 1990 and 2005. Zohir, the report’s author writes, “[O]ur estimate seems quite in line with the national level poverty findings.”

“While the Bangladesh survey was not designed to assign causality, it is very significant that the number of microfinance clients who left poverty closely links to the national data on poverty reduction,” said Microcredit Summit Campaign Director Sam Daley-Harris. “The majority of poverty in Bangladesh is in rural areas and so are the majority of microfinance clients.”

This good news comes during a difficult time for the microfinance sector. In recent years, microfinance programs have seen growing questions about their effectiveness. Several randomized controlled trials (RCTs) matched microfinance clients with control groups and showed no movement out of poverty in the group receiving the microloans. But these studies, touted for their rigor, have been met with questions of their own.

“Two of the problems I have with the RCTs that have been done to date are that they haven’t studied programs that are known for their deep commitment to ending poverty, and they typically cover a 12- to 18-month period, which is too short a time for real change to take place,” said Chris Dunford, President of Freedom from Hunger. “We have to remember that not all microfinance programs are the same. This new study from Bangladesh includes a large number of clients from BRAC and Grameen Bank, two Bangladeshi institutions known for their groundbreaking efforts to end rural poverty.”

Another setback for microfinance came in the wake of a tremendously successful initial public offering (IPO) in 2010 by SKS, an Indian microfinance program based in the state of Andhra Pradesh. Soon after the IPO’s success, serious charges began to emerge in the state about microfinance borrowers taking on multiple loans and too much debt, coercive collection practices by microfinance staff and even suicides spurred by these challenges.

“There are quite a few people who believe that microfinance has lost its way,” said Alex Counts, President and CEO of Grameen Foundation. “This Bangladesh survey reminds us that, even in the most difficult circumstances, major progress can be made. Bangladesh is not the ‘bottomless basket case’ that then-U.S. Secretary of State Henry Kissinger called it 35 years ago. It is instead a teacher to the rest of the world, with its civil society leading the way.”

The Bangladesh survey was administered between February and August 2009.

Download the report online:

Microcredit Summit Campaign:

The Microcredit Summit Campaign is a project of RESULTS Educational Fund, a U.S. based advocacy organization committed to creating the will to eliminate poverty. The Campaign was launched in 1997 and in 2007 surpassed its original goal of reaching 100 million poorest families with credit for self-employment and other financial and business services. The next Global Microcredit Summit will be held November 14-17, 2011 in Valladolid, Spain.

Economic Research Group:

The Economic Research Group (ERG) is a not-for-profit organization based in Bangladesh and was established to promote education and research with a view to improving social economic justice. ERG seeks to bridge the gap between academic research and policy analysis within Bangladesh and other countries of South and Southeast Asia. Through its work, ERG also aims to extend the frontier of knowledge on developing economies through analytical research and discussion of views on contemporary economic issues.

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