Last week’s business trip to Tanzania’s capital Dodoma has given me a very distinctive taste of Tanzania. I would never have guessed that anything else but Dar es Salaam is the country’s capital. Dar es Salaam has the industry, the workforce, the sea port, the embassies, the international airport, the companies and the traffic while Dodoma Continue reading Dodoma, the Powerless Capital of Tanzania
For quite some time I’ve been interested about development projects. Why some succeed and some fail. I won’t go into specific examples of failed development projects. One particularly outspoken example is a TED talk by Ernesto Sirolli (first part).
“Like parking a truck with two trailers backwards”
What makes many well-meaning projects fail is the huge complexity and the indirect influence necessary for a project to work. I compare it to parking a truck with two trailers backwards (try that for a change :-) ) Here is a list of influencing factors:
- Complexity of governance
- Long project duration
- Complicated action chain from input to output to outcome and finally to impact
- Lack of collaboration across disciplines and sectors
- Lack of professionalism
- Ulterior motives / hidden agendas
- Fundamental change of institutional environment during project
- Competition for resources
- Lack of proper need analysis / not doing the right things
- Redundant projects by different agencies
- Not learning from past failures / no independent project reviews
- Bad stakeholder management
- Population growth is neutralizing success
I am excited to see how FINCA’s founder John Hatch during his many assignments found himself documenting dozens of foreign assistance failures that came closer to destroying than assisting their intended beneficiaries. He longed to create an organization that would allow the poor themselves to manage their own development initiatives. (from wikipedia)
(photo by Cris Potter on StockMoney.com)
Microfinance promises a lot to many people. It depends on which promise we’re looking at: fight poverty, generate profits, provide financial services to the poorest, empower women, support entrepreneurs and create jobs. Each has its own merits and each only provides a sliver of the “truth”.
Take “fight poverty”. Only 50% of the loans are productive to start with. The other half don’t generate revenues and are used to buy food, pay school fees or medical bills. Obviously a non-productive loan is not considered a success in the narrow sense. But looking at the broader picture it might make sense to provide financial means to smoothen the income of the poor. And from an entirely different angle it is somewhat surprising that the poor repay their debts more easily than they save money beforehand.
Then there is the question of whom you ask: practitioners tend to have a more positive view based on anecdotes while quantitative researchers have a hard time proving positive impact and usually have to slice and dice the data to find impact, e.g. among rural female users of productive loans.
The existence of strong competition, market entry of traditional banks, new technologies and favorable regulatory environment all point to a potential success story, where efficient companies produce profits and operate in a sustainable manner.
To summarize: Microfinance services are helping, just not in the way microfinance’s foundational belief system says it does. If few clients actually use microfinance services in the way the original designers of microfinance programs expected them to, that doesn’t mean it is a failure. Microfinance does address the problem of income unpredictability. A stable, reliable source of credit, combined with savings, allows clients to meet their spending needs even as income ebbs and flows.
Hat tip to jaysupetran from Access Advisory for an in depth commentary oft the situation: Microfinance reality check.
(photo by Jovan J on Flickr)