Since Nobel laureate Muhammad Yunus established Grameen Bank in Bangladesh more than 30 years ago, the concept of microfinance has been lauded for its ability to lift people out of poverty and empower women. But a new quantitative study is challenging that well-accepted notion.
Saying “No clear evidence exists that microfinance programmes have positive impacts,” the study commissioned by the U.K.’s Department for International Development is based on an exhaustive review of 11 academic databases, four microfinance aggregators, and eight NGO and aid websites. It also studied nearly 3,000 articles, cites Madeleine Bunting of The Guardian.
According to the study, “almost all impact evaluations of microfinance suffer from weak methodologies and inadequate data.” This, the study says, led to “misconceptions about the actual effects of a microfinance programme.” For instance, contrary to well-accepted notions, microfinance is not much better for the poor than other forms of finance, such as moneylenders or banks.
Such misconceptions have “diverted attention” from “more pro-poor interventions,” the study concludes.
The head of the team that conducted the study, Maren Duvendack, said microfinance has the potential to address poverty more effectively when it is combined with other interventions. But food security and health are more crucial to productivity than credit.
The way Duvendack sees it, the development community must focus on savings, remittances and financial literacy rather than solely on microcredit. This, she says, is a more “holistic approach” to financial services to the poor.
Meanwhile, an unpublished DfID-commissioned study on microfinance in Africa is coming to “broadly similar conclusions,” Bunting quoted Duvendack as saying. The study however, might be a little too late in coming, as DfID has reportedly already committed a significant funding for expanding its microfinance programs in the region.
As a senior staff writer, Che focuses on international development breaking news coverage as well as interviews and features. Prior to joining Devex, Che handled communications for local and international development NGOs and government institutions in the Philippines.