In Due Diligence, David Roodman confronts important questions about the impact of microfinance and discusses how governments, foundations, and investors can best support financial services for the poor. In particular, Roodman argues for the need to deemphasize microcredit in favor of other financial services.
To learn more about Due Diligence and Roodman’s perspectives on microfinance, please join us on October 3rd for a conversation with David Roodman and Jonathan Morduch (RSVP). You can also listen to previous conversations with Timothy Ogden and Jonathan Morduch on the state of microfinance today.
In case you haven’t had time to read the book before the event, here’s a cheat sheet of sorts:
First, Roodman has a couple of pieces that summarize his perspective including “Think Again: Microfinance” in the Foreign Policy magazine and “Microcredit Doesn’t End Poverty, Despite all the Hype” in the Washington Post.
For a sense of how others have reacted to or challenged Roodman’s perspective, here are a few reviews from some prominent people in the field.
Alex Counts, the CEO of the Grameen Foundation, finds Due Diligence to be a must-read for anyone in the field. However, Counts considers the book’s evidence base to be slim, as Roodman cites only the studies involving randomized control trials (read Roodman’s response that true experiments can prove causation fairly definitively here). Counts also highlights the importance of one of Roodman’s main questions regarding whether microfinance has become a vibrant new industry that fosters long-term socio-economic development.
Claire Provost on the "Poverty Matters" blog at the Guardian hoped that Roodman would address the big unexplored question of “how did the dramatic claims about microfinance flourish in the first place?” In part, she blames development policy’s “faddishness” and search for a “miracle cure”. She urges others to address this question in order to better understand development rather than accept unsubstantiated claims.
GiveWell praises Roodman’s “evenhanded” approach to analyzing microfinance. They narrow in on chapters 6, 7 and 8 as the strongest parts of the book as they debate the case for microfinance based on various definitions of development. GiveWell agrees with Roodman’s conclusion of “less money for microcredit and more for bednets” but recommends individual donors be less tentative and conditional.
The most thought provoking question reported by Roodman regarding his book is essentially, “you’re telling me microcredit doesn’t really reduce poverty, and group microcredit may not even empower women. Then you expect me to get excited about building institutions that deliver it to lots of people?” Roodman acknowledges that his findings may disappoint readers, however he believes financial services are ultimately useful and cultivating the field is an important initial step. He assures funders and supporters of financial services for the poor that their initial investments will continue to be leveraged and that services will diversify beyond credit and become more flexible.