A few months ago, I wrote a blog post that drew on my experiences as a Kiva Fellow in Bolivia to discuss two points of criticism about microfinance, specifically from Aaron Ausland’s Huffington Post article, “How Microfinance Lost its Soul”. In this second installment, I will attempt to do the same, focusing on the portrayal of microfinance put forth by Tom Heinemann’s controversial documentary, The Micro Debt.
Supporters of microfinance seem to agree on two things about the film The Micro Debt:
(1) The discussion surrounding microfinance and its perceived and real impact, including the occurrence of irresponsible lending and over indebting clients, is an important one and should be given a prominent role;
(2) The documentary regrettably provides an extremely one-sided portrayal of international microfinance, largely ignoring how it actually works and the problems currently facing the industry, in favor of a more sensational and dramatic story.
Rather than responding point-by-point to the claims made by Heinemann, as a number of experts have already done (see below), I will discuss the work of one of Kiva’s field partners, in the hope that an example of responsible lending will provide a more varied and complete picture of the worldwide reality of microfinance.
Presenting a Kiva Field Partner, CIDRE
CIDRE provides funding for small business owners working in both services and production, but the majority of the loans they distribute are within the farming and livestock sector. They offer a wide variety of products tailored to their clients’ needs in an effort to fulfill their mission statement, which is to contribute to the sustainable development of small agricultural producers and micro-and small businesses in rural and peri-urban areas.
Because CIDRE’s work is heavily focused on the area of dairy production, they have acquired a knowledge and understanding of the sector that allows them to effectively serve dairy farmers that have historically been excluded from financial services. The institution knows, for example, what a head of cattle costs, and they are easily able to assess how much milk their individual clients can produce, based on how many heads of cattle they have, the quality of machinery, etc. For this reason, they can confidently and responsibly lend to a dairy farmer using only the client’s cows as collateral, whereas rivaling financial institutions might require a house or automobile as collateral.
CIDRE’s loan officers have observed that farmers are able to more efficiently produce better quality milk subsequent to taking out a loan. CIDRE witnesses its clients working harder and become more responsible because they take their debt very seriously and want to pay it off on time. People are also empowered by the fact that they are now worthy of credit and that there is someone looking out for their interests.
In even more remote areas of the department of Cochabamba, CIDRE works hard to bring financial services to a number of small villages through their regional offices. One of their 11 regional offices is located in Colomi, where clients’ main activity is growing and selling crops such as potatoes and beans. Since 2002, two of CIDRE’s loan officers have been based in the Colomi office and spend their days traveling great distances to visit with borrowers in the region, saving the clients the time and expense involved with traveling far to make payments on their loan.
The Discourse – Is all Criticism Productive?
I agree with the microfinance critics that relying only on anecdotal success stories perpetuated within the international development community give a false impression of microfinance, its challenges and its limitations. However, I also question the constructiveness of a movie that combines a montage of heart wrenching stories of failure (presumably caused by microfinance) with a personal attack on Grameen Bank founder Mohammed Yunus.
Tom Heinemann’s provides an extreme picture of the dangers of microfinance, leaving us to believe that most, if not all, MFI’s operate in the exact same way, and that they are completely unconcerned about the welfare of their clients. My experience in the field, particularly the time spent in CIDRE’s office, leaves me with a different impression entirely. CIDRE, by knowing and understanding its clients and the details of their business activities, is consistently (and responsibly) able to provide poor dairy farmers in the region surrounding Cochabamba with financial services, something that has been in demand for years, as evidenced by a high rate of application and a consistently high rate of repayment.
The hype that promotes microfinance as a silver bullet of international development is dangerous, but equally dangerous is the backlash to the hype – the documentary that attempts to tear down years of work towards building strong, sustainable financial institutions for the world’s poor. Improvements and advancements within the field of microfinance will happen as a result of an increasingly complete understanding of the realities in the field, and most importantly, the realities facing clients. So while I can appreciate the conversation initiated by Tom Heinemann, I hope anyone interested in gaining a more accurate understanding of microfinance will dig deeper for a more complete picture.
The Professionals Respond to Tom Heinemann
Read Kathleen Odell’s reply, posted on the Grameen Foundation’s Blog here.
To search for currently fundraising CIDRE loans on Kiva, click here.
Julie Shea has just finished a 7-month fellowship with Kiva and while she acknowledges that microfinance is not a panacea for poverty alleviation, she remains a strong believer in the importance of building effective financial institutions for people historically excluded from them.