Alex Counts Reviews Due Diligence

Last month Alex Counts, the president, founder, and CEO of the U.S.-based Grameen Foundation, reviewed my book. His review may well be the most thorough and thoughtful the book will get. I am humbled by his praise and his minor criticisms.

It is, quite simply, the best book I have ever read about microfinance among the many I have gone through. He analyzes the history, track record, recent developments and future of microfinance, and though I do not agree with all of his judgments, I agree with the vast majority of them and admire how he went about deconstructing such a diverse arena of human endeavor.

(I think "best book" is plausible only if we stipulate, reasonably, that Portfolios of the Poor is not a microfinance book...)

The hallmarks of his writing are nuance, detail-based distillations of publicly available information, fairness and dispassionate analysis. If I had to keep one book on my desk for easy access to guide my writings, conversations, analysis and decisions, it would be his.

In addition to saying what he thinks of my book, at the end Alex describes how the Grameen Foundation's activities align with my (unoriginal) recommendations. So it seems that Alex also means the post to position his organization in the eyes of potential supporters in the wake of my book. In other words, he's doing his job. Given this evident purpose, and since I lack objectivity, you'll need to judge for yourself how much to discount his praise as pragmatic politicking. I make that point partly out of modesty. But given our history of tangling over what the academic evidence shows about the impact of microfinance, Alex has earned my respect for the way he has yet kept an open mind.Naturally, I am moved to write mostly about points of disagreement---even as it feels unseemly to quibble with such a generous review. Alex relegated most of his specific criticisms to a supplementary pdf for microfinance industry professionals. In the same spirit, I have embedded my replies as comments in a copy of that file. (And I've added a few entries to the Errata.) In the body of this post, I'll respond briefly to a few lines in the body of Alex's.

The essence of his answer to whether microfinance reduces poverty, based on this very slim evidence base and other observations, is that it is possible to find correlations between access to microfinance and poverty reduction, but it is impossible to definitively prove causation.

Well, the randomized experiments can prove causation pretty definitively. (The main issue with them is that one should not overgeneralized from experiments in a few places and times.)As a counterpoint to my dismissal of non-experimental impact studies, Alex cites the literature review that the Grameen Foundation commissioned from Kathleen Odell. At one point she interprets a non-randomized study that I "ignore" (in Alex's words) as

gestur[ing] toward an association between microfinance access and poverty reduction in Bangladesh.

I think her characterization is fair---gesturing toward an association---but that's a far cry from proving an impact, a standard the experimental studies approach more closely, and which serious social investors should demand.Acknowledging my concern about a global, bubble-inflating glut of capital for microcredit, Alex highlights the Grameen Foundation's Growth Guarantees Program which provides repayment guarantees for loans taken by MFIs in their own currencies. This shields them from the risk of borrowing in a foreign currency such as the dollar, specifically that their own currency will plunge against the foreign currency when it comes time to repay the loan. While this seems like a fine program in principle, it is actually increasing the amount of money going into microcredit. In markets where there is already plenty of money, this program can make things worse. So I hope the Grameen Foundation will help organize the industry to confront what is really a collective action problem: exercising collective restraint to reduce the risk of more microcredit overshoots.

...researchers still have a lot of work to do in terms of properly evaluating what impact quality microfinance services have on poverty over the long term.

Amen. As I have presented my book in the last two months, the short time frame of the latest, randomized studies has been a recurring theme in the discussion with audiences.All in all, I am pleased that this industry leader has taken Due Diligence on board, and that the book is in some small way helping the movement find the most constructive way forward.