New Yorker Profile of Esther Duflo

The May 17 issue of the New Yorker has a finely written profile of Esther Duflo. It is gated. Author Ian Parker devotes approximately a page to the provincial interest of this blog, the impacts of microfinance. Duflo, you'll recall, is one author of the last year's influential microcredit impact study from Hyderabad, India. Parker shadowed Duflo as she returned to Hyderabad earlier this year to check on data collection for the follow-up study, which should reveal how random offers of microcredit affected households three years out. The section begins with a nice portrait of the human beings behind this work:

One afternoon in northern Hyderabad, in an area of slum housing built on streets too narrow for cars, Duflo watched as a J-PAL surveyor questioned a homeowner, an assured woman in her forties. The room where the interview took place, in the woman's home, was windowless and quite small but held some signs of spending: a television on which a gangster movie was silently playing, a camera, a large fridge, a fan.As the young surveyor worked through her questionnaire, the economic life of the interviewee came into focus. She had a small business selling saris, and her husband was a carpenter. The couple were building an extra floor on their home, to take tenants; elsewhere, they owned a second house that was already rented out. And they had chosen not to pay their water bill, in either of their homes, for the past four years. The woman explained, with a smile, that she was visited every month by a water-utility officials, and she always promised to pay. When the water was cut off, she would bribe an engineer to turn it back on. "I won't let these people coerce me!" she said.In part to pay for the new construction, the woman had five loans (or seven, if one followed her own astute example, and considered her two water debts as loans). Three of these were microfinance loans....The woman knew the exact details of each loan, and could report that her combined weekly payment was twenty-five hundred rupees---a little more than fifty dollars. She was clearly comfortable carrying the debt. She made p to three thousand rupees a week from her saris, and in a good week her husband made two thousand. Duflo, who later remarked on the orderliness of the woman's financial thinking, interrupted the survey to ask questions. Why hadn't she saved first, and then built the extra floor? The woman replied that she had wanted the immediate benefit of the rental income. Why hadn't she tried to get one large loan? She did not have papers for her own house, and so could offer no collateral.The last page of the questionnaire showed a drawing of a ladder with ten steps. The woman was asked where she saw herself on the ladder, financially. She pointed to the third rung from the bottom, saying, in English, "Middle class."A few minutes later, we were in the more ramshackle home of a neighbor, in a room largely filled with a bed, and decorated with a poster of three chubby babies and the line "Look for someone to make happ and happiness will find you." A weary-looking grandmother in her late forties, when shown the prosperity ladder, pointed to the second rung from the bottom. Her husband was a day laborer, she said, but had recently injured his leg and had stopped working. The couple now had debts of about three thousand dollars, and no income. In the past, her son had helped them out, but he was now married himself, with two children, and his work was unreliable. This woman had taken out loans from four microfinance companies, and to do so she had lied about her entrepreneurial ambitions. She told one company that she had a vegetable business.

On the reaction to the first-round study:

When Duflo and her colleagues announced their initial findings, they spoke carefully: if microfinance didn't fix everything, that didn't mean it fixed nothing. Spandana [the Hyderabad microcreditor] responded in that spirit, and encouraged J-PAL to do the follow-up survey, which would detect any delayed impact. But the wider industry was defensive, which clearly surprised Duflo, who can hardly imagine people who do not welcome solid, hard-won data about their field of interest. One advocacy organization, the Consultative Group to Assist the Poor [CGAP], responded to the study on its Web site, noting that the poor seemed keen to take up such loans: "Does microfinance improve their lives? Poor people say yes." Duflo describe this to me as "the moronic revealed-preference argument." People have been known to buy ill-advised things, after all. Drug dealers thrive.

This bit is unfortunate. The quote from CGAP, which is not an advocacy group, is in a note by Rich Rosenberg, who is not a moron. In fact, the quote is the title of a section that goes on to point out that "repeated use does not by itself prove that a service is benefiting users. No one would make this argument about repeated use of heroin."The closer:

This spring, a consortium of the leading microfinance organizations published a collective statement, which was, in large part, anecdotal: it told of a woman from Bosnia-Herzegovina who expanded her hairdressing salon, a woman from Peru who built a house. Duflo, out of patience with the industry, told me, "Here is what I think: We tried to help them. They don't want to helped. Too bad."

Ouch.