Due Diligence

Roodman, an economist then at the Center for Global Development, conducted a systematic review of the evidence on microfinance and wrote this account of what it shows.

His method was unusual: he wrote the book publicly on a blog as he worked, publishing drafts and responding to criticism from researchers and practitioners, which meant the analysis was tested as it developed.

His findings are careful and largely negative about the strongest claims. The randomised evaluations conducted in India, the Philippines, Morocco, Bosnia, Mongolia, Ethiopia and Mexico consistently find no measurable average effect of microcredit access on income, on consumption, on health, on education or on women's empowerment. Some borrowers invest productively and some businesses expand, but the average effect across borrowers is not detectable. The claims about poverty reduction and about transformation that drove the sector's growth are not supported.

He identifies what the evidence does support. Microfinance provides financial services to people who lacked them, and the ability to manage cash flow, to smooth consumption and to save has value even without income effects. He argues that savings and insurance products may deliver more than credit does. He also treats the industry's own institutional achievement, building organisations that reach very large numbers of poor customers sustainably, as real and distinct from the effect on borrowers.

He covers the harms, including the Andhra Pradesh crisis of 2010 in which aggressive lending and collection practices produced borrower distress and a political backlash.

Roodman's assessment is measured throughout and he is explicit about uncertainty. The book is the standard reference for anyone evaluating the sector's claims. The evidence base has grown since 2011 and has not overturned his conclusions.