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UNITED NATIONS CAPITAL DEVELOPMENT FUND Microfinance |
Issue 15 / August 2005 |
 
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Editor's Note:
Information Asymmetries — Do We Have Any Good Data on Microfinance? Let's face it. The microfinance industry is often guilty of some fairly unsubstantiated and quite outrageous claims about microfinance's ability to eradicate global poverty. Yes, in a world where financial sectors often reach less than 10% of the population, extending financial services to poor people is an extremely exciting idea - not least because it just seems obvious. We're so sure that microfinance will reduce poverty that we'll devote our careers and our lives to increasing such access - and we'll stake our reputations on it. But the fact remains that, so far, it's no more than a hunch. We can't really prove that microfinance does much of anything. Anecdotal evidence and a handful of impact studies do not a fact make. Luckily, this glaring omission has also occurred to some of the greatest minds in development economics and statistics today. At the instigation of Mr. Stanley Fischer, Governor, Bank of Israel, the International Year of Microcredit (the Year) and the United Nations Capital Development Fund (UNCDF) in collaboration with the World Bank and the International Monetary Fund (IMF) convened leading experts in October 2004 to consider rectifying the situation. Since then, a growing urgency has emerged to collect hard data to substantiate common claims. As the Featured Guest in this issue of Microfinance Matters, Mr. Fischer says that without data, we can't really say how many people do or don't have access, and we cannot analyze the impact of providing financial services to poor people. As Chair of the Advisors Group for the Year, Mr. Fischer wrote a letter to the leaders of the G8 Summit in July 2005, urging that the World Bank and IMF collect more and better microfinance data, and was successful in securing confirmation of the G8's commitment to the data issue in the Summit Progress Report. As a result of the October Data Workshop, the World Bank, the UK's Department for International Development (DFID) and FinMark Trust have formed a working group to spearhead the effort to develop headline and core indicators, as DFID continues to support more FinScope surveys in Africa and Asia. The Central Bank of West African States (BCEAO) has been a pioneer in this effort: it has collected microfinance data for over ten years, and provides an excellent example of how data can be used to better understand the microfinance sector. The World Savings Banks Institute has also been collecting data of its own, which has yielded some surprising results - another reason to be sure that all we are saying is really true. Maria Flores Letelier, Senior Consultant to Cheskin, points out that it's not enough to collect any old data - in order to be "meaningful", data must capture the complexities of the people and communities it represents, and yield "actionable" insights. New York University Professor Jonathan Morduch provides an economist's viewpoint on microfinance impact evaluations, cautioning that the unobservable traits of microfinance clients must be accounted for, and suggesting the use of instrumental variables, while Marc Jacquand of UNCDF takes the position that providing financial services to poor people is a worthy end in and of itself, and measuring social performance raises so many concerns we would be better off not measuring it at all. In the Voices of Microfinance discussion section of this issue, members of the microfinance community considered access to formal financial services as an indicator of whether the needs of poor people were being met. While many respondents answered no, and quite a few said yes, all of the answers highlighted the challenges of establishing indicators for microfinance. Certainly, proving that access to microfinance can drive economic growth is an arduous task. But as Mr. Fischer declares, "Even if it doesn't, it very likely makes a significant difference to the lives of tens of millions of poor people...And that is an excellent reason to treat microfinance as a priority."
Vanessa Ward
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