AboutMicrofinance participated in the January 30, 2012 webinar debate “Moving Financial Inclusion Beyond Microfinance”, between *David Roodman (Center for Global Development) and *Milford Bateman, (University of Juraj Dobrila Pula) with Chuck Waterfield (Transparency) moderating.  The debate, hosted by USAID’s Microlinks and FIFO, focused on addressing:  If microfinance hasn’t achieved its objective in substantially reducing poverty, what are the pathways to financial inclusion that will contribute to this objective?

This lively and thought-provoking discussion presented stark opposing views on the effectiveness of microfinance in achieving its goals for fighting and reducing poverty.

Roodman claimed several positive results over the course of the history of microfinance. He noted that microfinance has helped millions at the bottom of the pyramid obtain basic needs, and recognized the need for a broad range of financial services for the poor.  Roodman noted, however, that perhaps it is time to de-emphasize traditional microcredit and to focus on other financial services for the poor (savings and insurance).  He acknowledged that while microcredits have been overheated, it is not an absolute and microcredits should not be eliminated (citing the US mortgage crisis, which did not lead to the demise of the mortgage market).  Moreover, focusing on ‘financial inclusion’ Roodman cited the success of savings programs such as Bolivia where 2 million microsavings accounts have been created.  He defended microfinance as a successful model and noted that ‘giving up on microfinance as a silver bullet is not the solution”.  On another note Roodman mentioned that, contrary to some claims, microfinance has not diverted resources from other initiatives.  In fact, he points to the development of sustainable, innovative and competitive microfinance institutions that now serve tens of millions of poor people.

Bateman’s retort questioned the overall efficacy, impact and sustainability of microfinance.  Bateman contends that microfinance has failed to live up to expectations and that what matters are the costs and benefits relating to microfinance.  He noted that the benefits of microfinance are small and may not outweigh the costs, and contended that historically the microfinance industry has only looked at the benefits but not the costs; and attributed this to politically-motivated decisions.  He noted that the Grameen Bank model, focused on microcredit, does not work as it does not get people out of poverty in a sustainable manner.  He further argues that since microfinance has not been able to fulfill its mission, the industry is now moving towards a ‘financial inclusion’ model – bundling services for the poor.  Citing the recent IDB report,which questions the effectiveness of microfinance, Bateman supports IDB’s assessment that scarce resources in Latin America should be allocated to the formal sector (as opposed to subsidizing microfinance which perpetuates the informal sector).  Arguing that the biggest beneficiaries of microfinance have been the institutions themselves rather than the clients, Bateman supports collective ownership and thereby encourages the use of community owned and controlled financial institutions, such as credit unions and credit/financial cooperatives.

* David Roodman, author of “Due Diligence: An Impertinent Inquiry into Microfinance”.

* Milford Bateman, author of “Why Doesn’t Microfinance Work? The Destructive Rise of Local Neoliberalism”.