Is microfinance an effective tool for bringing people out of poverty? Many people with little first-hand experience of that sector assumed that it was after Muhammad Yunus, founder of the Bangladesh-based Grameen Bank, was awarded the Nobel Peace Prize in 2006. More recently, however, microfinance institutions have been criticized by many for not delivering on their earlier promise.
In recent years, David Roodman, keynote speaker at the 2013 Penn Microfinance Conference, has put that proposition through a series of rigorous mathematical tests, only to conclude that the yardsticks for measuring the success of the microfinance sector are more complex, subtle and elusive than people realize. Roodman, author of the book, Due Diligence: An Impertinent Inquiry into Microfinance, studied theoretical mathematics at Harvard before joining the Center for Global Development, where he is now a senior fellow.
“I dispute the original conclusion” of research that solidly linked microfinance to poverty alleviation, Roodman told his audience at Wharton. “I don’t believe you will be shocked by my conclusions, but I do feel that I put the emerging consensus about microfinance on a firmer foundation.” What kinds of useful roles can microfinance play, beyond the alleviation of poverty? Why is it so hard to measure the multiple impacts of microfinance? And what advice does Roodman offer microfinance institutions that are eager to provide social benefits to the poor?
Originally published May 29, 2013 by Knowledge@Wharton