In my May 18 post, I mentioned a study by a colleague of MIT development economist Esther Duflo which had provoked a rethinking of Karimu’s position on how to get insecticide-treated bed nets to Tanzanian villagers. The study by Pascaline Dupas of UCLA convinced me that Karimu should give away the nets rather than sell them at far below our cost. I’ve since turned to Duflo’s own work and found at least one paper relevant to Karimu’s plans in Tanzania. Last year Duflo and three colleagues published “The miracle of microfinance?” (accessible at http://econ-www.mit.edu/files/4161), a title that caught my eye because Karimu has considered moving into microfinance soon.
The two Tanzanian villages we have involved ourselves with, Bacho and Dareda, suffer from isolation as much as from poverty and disease—or rather, isolation is one of the roots of poverty and disease in the villages. The heavily potholed dirt road running through the middle of Dareda discourages travel even from the regional capital, Babati, although on a paved road one could probably make the trip comfortably in less than half an hour. However, officials in the region tell us that in the next two or three years Tanzania’s central government plans to tarmac hundreds of miles of road, including the endless, arduous stretch passing through Dareda. We don’t take it for granted that this will happen since the people of Bacho and Dareda talk with weary skepticism about their government; it has failed them before, chronically, so another failure will surprise none of them. But if government answers the villagers’ prayers—offered up mainly in Bacho’s ramshackle Catholic church and in Dareda’s much larger one, though a tiny Sunni mosque built by the government of Kuwait sits alongside the footpath between the two villages—then that paved road linking them to Babati and beyond could potentially effect major improvements in their lives. A paved road would give the villagers access to markets big enough to justify Karimu’s expansion into microfinance lending. Karimu would make loans supporting the kind of entrepreneurship that, as the story goes, has worked miracles in battling gender inequality and disempowerment of women, poverty, lack of education (for girls especially), high child mortality rates and overall poor health, and irresponsible spending (mainly by men) on alcohol, tobacco, and gambling and the like.
So I read “The miracle of microfinance?” with great interest. I wanted to see if Duflo’s celebrated—and controversial—gift for randomized experimentation would substantiate the anecdotal evidence on which microfinance has built its spectacular reputation since the late 1970s. The paper’s introductory remarks cite the development consultant Milford Bateman’s incendiary claim, in his letter to the Financial Times two years ago, that “microfinance programmes most often spell the death of the local economy.” Yet Duflo and her colleagues know that anecdotal criticism carries exactly as much weight as anecdotal praise, hence the need for their randomized study, begun in 2005 in Hyderabad, India, in cooperation with Spandana, a microfinance lender based in Hyderabad. Spandana found one hundred four neighborhoods untouched by microfinance and opened branches in half of them. Then, between fifteen and eighteen months later, households in the fifty-two treatment neighborhoods as well as in the fifty-two comparison neighborhoods answered a comprehensive survey.
The study’s measured findings contrast sharply with the microfinance industry’s generally defensive reaction, as described in the May 17 New Yorker article which introduced me to Duflo’s work. She and her coauthors conclude that microcredit “does allow households to borrow, invest, and create and expand businesses.” They also write that microcredit “may not be the ‘miracle’ that is sometimes claimed on its behalf” since “it appears to have no discernible effect on education, health, or women’s empowerment.” Nevertheless, they concede that “after a longer time, when the investment impacts (may) have translated into higher total expenditure for more households, it is possible that impacts on education, health, or women’s empowerment would emerge.”
Therefore I don’t see this paper as a game-changer for Karimu, unlike the Dupas study of how best to distribute bed nets. We at Karimu certainly wish to continue improving education and health in Bacho and Dareda and to seek ways to give the village women more power. But as long as we refuse to place insupportable demands on microfinance and, instead, plan to satisfy ourselves with loans that merely help households “borrow, invest, and create and expand businesses,” we will look forward to the day when the tarmac reaches Dareda.
Yet I say this only provisionally. After all, the admission by Duflo and her coauthors that time might alter their findings leaves an opening for Milford Bateman’s pessimism about microfinance: could it take more than fifteen to eighteen months for microfinance to “spell the death of the local economy”? Karimu has time to investigate this possibility, anyway, since Dareda will not have its paved road for a while.–Don Stoll