The microfinance industry is still trying to regain its balance after being knocked about this past year. This was most evident by the tone of the Microfinance USA Conference and best summarized in Jonathan Lewis’s opening remarks. “Microfinance is not an industry. It is a movement,” Lewis told the 800 attendees becoming the mantra he repeated throughout the talk.
Lewis rightly points out that microfinance was oversold. The moment problems began to arise in Andhra Pradesh, India and Bangladesh the media and politicians had the opportunity to jump in. These events brought forward the long overdue discussion about governance.
Although the debates about structure and governance are necessary and interesting, they should continue to be subservient to understanding what microfinance actually can and cannot do.
A return to the ethical goals of microfinance is needed argues Lewis. The bad actors need to be kicked out of the microfinance and the drive for scale should be tempered. In the end, microfinance is about the people who the lenders are serving. Meeting their needs is of the utmost importance.
One way to meet this need is to consider the effectiveness of microfinance offerings. Measuring impact and learning what works best will allow MFIs to keep their focus on meeting their clients’ needs. Impact evaluations or randomized control trials (RCTs) have grown in popularity with a TED talk from MIT researcher Esther Duflo, a profile of her in the New Yorker, and a pair of recently published books from the researchers utilizing the evaluation method (here and here).
In the final section, Lewis takes on the growth of RCTs. His dislike for RCTs is clear as he warns against relying too heavily upon them. While right, he is as guilty of overselling an idea as the microfinance champions he chastised earlier. One section in the written version (PDF) of the remarks that Lewis skips is important because it helps to show the flaw in this section of the keynote. He writes:
“Consider a neighborhood newspaper anywhere in the world. Computing the value of a newspaper based on its circulation and advertising revenue produces its valuation, not its full value. A newspaper is a commercial venture, but also a social asset with a vital role in advancing free speech and fostering community cohesion.”
This scenario fits into the idea that RCTs are making the claim that they can understand every aspect of the value of the newspaper. That is not the case and nobody is saying that. One thing they can do for a newspaper, is measure what designs will reach more people. For example, the newspaper could try a new advertising campaign. By exposing different campaigns to different populations, an RCT could help determine what will increase readership.
The question is not about the value of the paper; rather it is about maximizing its reach and meeting the needs of the readers. The same applies to microfinance. RCTs will not come up with a universal product that will maximize the increase of income for people taking out loans. What they can do is make the product better and try to understand the causes.
What Lewis has done is confuse the toolbox with the tool. RCTs do wield a lot of power these days, but like a hammer there needs to be a nail, a person to swing it, and something to drive the nail into. Further, the hammer has to hit true and what is being built needs to be forged correctly based on the design and circumstances. Critics of RCTs, like Lewis, want to pretend that the implementers are not aware of all of these contributing forces.
Lewis is right to say that they aren’t ever going to be entirely happy. That is because learning from RCTs will take some time and require new and improved methods to ensure that the data collected is valid. The point is not to tinker away at a ‘pet project’ or become a ‘mafia’ of evaluators. The drive to find what works and why is important and should not be casually dismissed.
At the same time, evaluation should not stop innovation from happening. One concern is that we will have to wait for the latest results from a two year RCT to know what to do. Nobody is arguing that. Every intervention should not be evaluated through an RCT, but utilizing better tools to measure them is necessary. Knowing what works and trying to understand why will help to make microfinance a more effective movement.
Microfinance is doing just fine. A return to meeting the needs of the clients rather than building an industry will help to improve how services are communicated and delivered. Rigorous evaluations are a tool that can help to fortify this realignment. Removing the goal posts entirely is where some of the problems started.
Lewis is right. Microfinance is a movement, but it needs to continue to improve. “Poverty is too complex to solve with one intervention,” he said. The lessons learned over the past year will ultimately strengthen microfinance as it forces MFIs to rethink how they offer their services and better understand their role in poverty alleviation.
