By Dennis Shaughnessy
When I think of the gap between theory and field in microfinance, and in the definition of success or failure in alleviating poverty, the comparison that comes to mind is with new cancer drugs developed by biotechnology companies. Amgen vs. ACCION, Genentech vs. Grameen, if you will. I’ve been fortunate to study, work and teach in both disciplines. While the two industries and markets are of course quite different, there are lessons to be learned when comparing the perception and reality of these two important areas of development.
So, let’s compare microfinance and a microcredit loan to a poor woman in a developing country to a hypothetical and composite new cancer drug offered by a biotech company to a very ill cancer patient. We’ll be looking, then, at economic development and poverty alleviation compared to the health care industry and cancer treatment in particular.
Biotech companies often spend ten or more years and a billion dollars on R&D, and invent a new protein-based cancer drug that, for example, increases longevity of one third of trial patients with stage four pancreatic cancer by two months. The rest of the target patient population feel no impact at all, or tragically die at roughly the same time they would otherwise. The drug might cost $100,000 per treatment cycle, or even more. When the FDA approves the drug as safe and effective, the company’s stock price soars, and doctors begin to enthusiastically prescribe or utilize the latest treatment to their patients. In short, the market has found a “solution”.
How then is microfinance, with its limitations and failures, any different from a successful new cancer drug like the fictitious/composite one I’ve just described? The drug won’t work on most people, and neither does microcredit. The change for the people favorably impacted by the drug is minimal, in fact perhaps marginal, as it is sometimes the case with microcredit loans. The drug clearly does not cure cancer, but rather allows the patient to manage his or her pain just a bit better, just as microfinance does not cure poverty but rather allows a poor person the control and freedom to survive the pain of poverty.
And yet, while we can read numerous articles and books about the failure of microfinance to cure poverty, we read few articles or books criticizing the biotech industry for failing to cure cancer. We read that microfinance doesn’t improve the overall economies of poor countries. Well, many years of R&D and hundreds of novel cancer drugs hasn’t cured cancer, either. Innovative new cancer drugs are not considered a “failure” just because they don’t work every time for every patient, but microfinance programs and models often are written off as failures because a loan doesn’t work every time for every borrower.
A new generation of critics of microfinance, some armed with studies but most with just opinion, declare microcredit an over-hyped, misguided debt trap that creates dependency rather than freedom. Yet, millions of poor people live better lives as a result of customized financial services provided by innovative enterprises, for the first time.
An informed realist with field experience must acknowledge that microcredit does in fact work, and does help desperately poor people, just as cancer drugs work and help desperate cancer patients. It just doesn’t work every time, or for every kind of poor person. A microfinance loan, like a cancer drug, works best when it is carefully targeted to meet the specific condition and needs of the “customer”, delivered by an efficient and well financed enterprise with a business model that maximizes a measured and sustainable impact.
We may never cure cancer, just as we may never eliminate poverty, but through the hard work of those who refuse to accept failure in each case, we will continue to make meaningful progress in the fight against both tragedies of the human condition, measured one person at a time. It’s time to get over the period of microfinance romanticism, and move on to the hard work of developing innovative and efficient financial service solutions for a billion poor families that desperately need the opportunities that access to capital already provides to most of us in the rich world.