Microfinance vs. Biotechnology: Defining Success and Failure

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.