Chapter 1 main post: Introduction and overview

As I conceive it, Chapter 1 (.doc .pdf) motivates, introduces, and summarizes the book. Not surprisingly, I drafted this chapter first--back in June, in order to present the book ideas to my CGD colleagues. Since then I have written and learned much more. Once the rest of the book is drafted, I will return to this chapter and make it do a better job of distilling and communicating the conclusions. So I view the current draft as provisional.I decided to open the chapter with two stories because I am impressed with the power and use of stories in conversations about microfinance, and because a pair of seemingly contradictory stories helps drive home the idea that the truth about microfinance (as about most important things in life) is subtle and complex. The chapter goes on to argue that we know more about the financial than the social bottom line of microfinance. And it lays out my three-part paradigm for thinking about the effects of microfinance, which derives from three different ways of thinking about economic development: development as measurable impact, development as freedom, and development as societal transformation/institution building.The rough summary of my current thinking runs like this:

This book aims to probe and limn the truth of microfinance, such as it can be understood, and draw out the implications for all those who back microfinance or contemplate doing so. It does so by viewing microfinance through the perspectives of history, economics, ethics, and politics; and through the eyes of poor clients struggling to protect and improve their lot and microfinance managers struggling to break even. Each perspective offers a piece of the truth of microfinance. Many books have been written about microfinance, but I don't think any other has quilted together so many perspectives. If this quilt can be distilled into a few statements, perhaps they are that the poor need financial services as least as much as the rich; that this is why microfinance is far less novel than usually believed; that much of what characterizes modern microfinance, such as the focuses on women and credit, arose out of business practicalities rather than the belief that these emphases maximize impact; that the statistical evidence for impact is remarkably weak; that the ancient conundrum of usury, of deciding when credit empowers and when it enslaves, lurks unresolved in microfinance too; that the politics of aid rewards those who accentuate the positive, leading to distorted and distorting expectations of what microfinance can do; and yet that any business that gives financial maneuvering room to a hundred million voluntary customers must be doing something right.