Review:
Due Diligence, by David Roodman
| Publisher: |
Center for Global Development |
| Copyright: |
2012 |
| ISBN: |
1-933286-48-2 |
| Format: |
Trade paperback |
| Pages: |
335 |
Due Diligence: An Impertinent Inquiry into Microfinance is a
detailed analysis of the effects, philosophy, approaches, and merits of
microfinance as an institution and as, increasingly, a charitable focus of
the developed world. The author, David Roodman, was a senior fellow at
the Center for Global Development at the time of writing this book, and is
an expert in microfinance and economic development. This book starts as
an overview and a history of the spectrum of microfinance institutions
(something I found very valuable, since I knew very little about
microfinance prior to
Kiva's popularity), and
then attempts a critical, data-driven analysis of whether, to what extent,
and by which measures microfinance is successful.
The most common aspect of microfinance, made popular and prominent by Kiva
among others, is microcredit: small loans to people in developing
countries. The underlying theory of microcredit is that lack of financial
services handicaps prospective entrepreneurs and business owners in the
third world, preventing them from growing businesses, funding expansion,
and moving out of poverty. By extending relatively small amounts of
credit to these people, or so the theory goes, they can better smooth out
the uncertainties of day-to-day life and get the necessary capital to
expand small local business.
Microcredit is not the only type of microfinance, though, and Roodman's
careful discussion of that point was one of the most informative parts of
this book for me. It can also come in the form of microsavings tiny
bank accounts or small-scale savings plans or microinsurance. Roodman
makes a very interesting argument that these three forms of microfinance
form two opposing continuums. Microcredit is the easiest to provide and
microinsurance is the hardest, for many reasons he discusses including
some that were surprising to me, but microinsurance is arguably the most
helpful and beneficial to the individual poor and microcredit is the
least.
The opening history and survey does an excellent job showing the range of
techniques and approaches used in microfinance, and showing the challenges
of providing it. I had some vague understanding of the logistical
challenges in serving areas far away from traditional infrastructure. I
had much less understanding of the fascinating array of techniques in use,
both inside and outside what's become the microfinance industry. Some of
these techniques are brilliant examples of human economic creativity and
skill at balancing incentives with risk protection. There are a much
wider variety of approaches and instruments available than the individual
or group loans that one typically sees on a site like Kiva, all with
different trade-offs in group size, flexibility, rigidity, risk, and
complexity. This book is well worth reading just to get a feel for the
huge array of financial arrangements possible outside of the traditional
banking structures that most readers of this review are used to.
Another question Roodman answers thoroughly is why microfinance is so
focused on microcredit. My vague unease with that was strengthened by
reading David Graeber's
Debt, which
among many other things makes clear some of the social perils and power
imbalances in lending.
Due Diligence both crystallized that
discomfort and explained why alternatives are difficult. Both
microsavings and microinsurance necessarily involve considerably more
regulation (which has both advantages and complexity), since they involve
taking and safeguarding people's money and promising service in the
future. Lenders require less trust; lenders instead extend trust and
assume that risk themselves, and are in a position to do so.
Microinsurance is also harder to explain and harder to target, although it
is potentially the most helpful financial instrument when well-targeted.
And microcredit can absorb huge influxes of capital from the outside,
lending it out in a region, while both microsavings and microinsurance are
necessarily built on the money already in the local economy and are
inherently more resistant to external involvement. (I'm of the opinion
this is a significant feature, but it makes it far harder for them to
catch on as a charitable trend.)
The heart of the book is a hard look at whether microfinance, and
particularly microcredit, works. Roodman attempts this analysis for three
different definitions of working: lifting people out of poverty (the most
commonly claimed success), giving people more freedom and control over
their lives even if their poverty level does not change in absolute terms,
and developing the local economy. Sadly for charities like Kiva,
microcredit does surprisingly poorly on the first two metrics.
There is still little clear data, and the degree to which data from one
region is applicable to a different region is highly debatable, but what
evidence we have does not support the theory that microcredit lifts people
out of poverty. In fact, the more intense the microcredit, the more
likely it appears to be that credit pathologies common in the developed
world, such as taking out loans from one organization to pay off loans
from another, spirals of debt that is unlikely to ever be repaid, and
aggressive debt collection methods, turn up in microcredit as well. The
vision of the entrepreneur who succeeds through new-found access to capital
is largely a myth. Indeed, the current packaging and presentation of
loans to distant charities in developed countries means that even the
supposed purpose of the loans is dubious. Loans are almost always
presented as being for some sort of business activity, since that's what
external charities want to fund, but money is fungible and the funds are
more often used for all the things people normally need to use funds for:
weddings, funerals, food for the family in hard times, paying off other
loans to relatives, and other daily expenses.
On the empowerment front, microcredit fairs little better, and here I
particularly appreciated Roodman's clear-eyed and honest portrayal of
common microcredit practices and their benefits for the creditors. For
example, microcredit makes much of loaning to women, and presents this as
a story of female empowerment. Roodman argues that there is some reality
behind that, but it's also clear that microcredit organizations loan to
women because women are more likely to repay not due to any inherent
gender trait, but because women are easier to intimidate and shame into
repaying. Similarly, the much-vaunted group loans, usually presented as a
way for the community to support each other and teach each other financial
skills, are most common in the poorest regions because they represent an
outsourcing of costs. The main risk to the lender is that poor people
have no such thing as credit histories, and detailed investigations of
someone's trustworthiness is expensive. Groups are jointly liable and
therefore will police themselves and check each other's reliability at no
cost to the lender. Groups will also use intimidation tactics and even
violence against members who don't or can't repay their share, without the
lender having to get involved or have any responsibility for those
tactics. Roodman takes a philosophical tone on this topic, noting several
times that services for the very poor are generally of low quality and
finance is no exception. I'm less inclined to be philosophical; after
reading this book, I find it very hard to support group loans.
This leaves economic development as the most compelling argument left for
microcredit. This is weak tea for people like myself who wanted to
believe in the transformative power of microcredit, but Roodman does a
solid job explaining why it's still important. There is a great deal to
be said for the perspective that only industrialization actually lifts
people out of poverty on any substantial scale, and therefore the most
useful type of aid is aid that somehow contributes towards
industrialization. Building a native financial industry could arguably be
such a step. And there seems to be some real merit and lasting effect to
having a richer and more capable set of local financial institutions.
However, here, it's not at all clear that external money helps. In fact,
there's quite a bit of evidence that external money hurts, since it pushes
microfinance institutions to find ways of using that money and pleasing
external donors instead of building their infrastructure and capabilities
as financial institutions. The earlier institutions, such as the Grameen
Bank, seem to have done a better job at being local institutions woven
into the local economy than have the later organizations that are largely
supported by western donors. Roodman makes a good case for the usefulness
of microfinance as a part of economic development, but it comes with a
strong argument against too much external funding, and particularly
against the practice of developed world donors funding specific loans.
I came away from this book feeling like I had a much better understanding
of the core problems and techniques of financial services for the poor,
and with a strong desire to see more microsavings than microcredit. The
two are closer in nature than I had expected, and Roodman's analysis of
the similarities was fascinating, but microsavings seems less vulnerable
to some of the credit pathologies. There is also some statistical
evidence that microsavings does provide some modest reductions in poverty,
while the evidence for microcredit is much less compelling.
Sadly, from the perspective of a resident of the developed world such as
myself who would very much like to help, neither microsavings nor
effective microcredit seems likely to benefit from my contributions, and
particularly not in the form of a site like Kiva. The end of this book is
a long appendix that reprints multiple blog posts on related topics,
including additional discussion of the problems with the Kiva model.
Effectively, Kiva is a way for people like myself to subsidize microcredit
organizations. It's not at all clear that subsidies are needed, and
there's some reason to believe that they encourage negative and
destructive behavior. The way they are marketed involves a certain amount
of lying, or at least distortion, on the part of multiple actors in the
microcredit picture. And they're a distraction from microsavings, and
from microcredit based on loaning out savings from within the same local
economy, both of which seem to have considerably more positive properties.
Due Diligence is a book with a somewhat narrow target audience. It
will appeal primarily to people with an interest in economics,
particularly development economics, or who are evaluating microfinance
charities or analyzing their support of groups like Kiva. But within that
context, this is an excellent book, and I recommend it to your attention.
Roodman is clear, thorough, and fair within my ability to measure that,
and while no one book can be the final word on a topic, he adds
considerable data and thoughtful analysis.
If you are a supporter of Kiva, like I was, I fear you'll find this book
rather discouraging. But it's better to have the information than not,
and I found it a good reminder of the inherent drawbacks of loans and
debt. There is, sadly, nothing magical about microcredit that removes
those problems.
Rating: 9 out of 10
Something straight out from the real world: Menu cards in restaurants are
not nice to deal with if you are blind. It is an old problem we grow used
to ignoring over time, but still something that can be quite nagging.
There are a lot of psychological issues involved in this one.
Of course, you can ask for the menu to be read out to you by the staff.
While they usually do their best, you end up missing out on
some things most of the time.
First of all, depending on the current workload in the restaurant,
the staff will usually try to cut some time and not read everything to you.
What they usually do is to try to understand what type of meal you are
interested in, and just read the choices from that category to you.
While this can be considered a service in some situations (human preprocessing),
there are situations were you will definitely miss a highlight on the menu that
you would have liked to choose if you knew that it was there.
And even if the staff decides to read the complete menu to you (which is rare),
you are confronted with the 7-things-in-my-head-at-once problem.
It is usually rather hard to decide amongst a list of more then 7 items,
because our short-term memory is sort of limited. What the sighted
restaurant goers do, is to skip back and forth between the available options,
until they hit a decisive moment. True, that can take a while,
but it is definitely a lot easier if you can perform "random access reads" to
the list of choices yourself. However, if someone presents a substantial number
of choices to you in a row, as sequential speech, you loose the random
access ability. You either remember every choice from the beginning and do your
choosing mentaully (if you do have extraordinary mental abilities), or you end
up asking the staff to read previous items aloud again. This can work, but
usually it doesn't. At some point, you do not want to bother the staff anymore,
and you even start to feel stupid for asking again and again, while this is
something totally normal to every sighted person, just that
"they" do their "random access browsing" on their own, so "they"
have no need to feel bad about how long it takes them to decide, minus the typical
social pressure that arises after a a certain time for everyone, at least
if you are dining in a group.
In very rare cases, you happen to meet staff that is truly "awake", doing
their best to not let you feel that they might be pressed on time, and
really taking as much time as necessary to help you make the perfect decision.
This is rare, but if it happens, it is almost a magical moment.
One of these moments, where there are no "artificial" barriers between
humans doing communcation. Anyway, I am drifting away.
The perfect solution to this problem is to provide random access browsing
of a restaurant menu with the help of digital devices. Trying to make
braille menus available in all restaurants is a goal which is not realistically
reachable. Menus go out of date, and need changing. And getting a physical
braille copy updated and reprinted is considerably more involved as with digital media.
Restaurant owners will also likely not see the benefit to rpvide a braille
card for a very small circle of customers. With a digital online menu,
that is a completely different story.
These days, almost every blind person in at least my social circles
owns an iOS (or similar) device. These devices have speech synthesis and web
browsers.
Of course, some restaurants especially in urban areas do already
have a menu online. I have found them manually with google and
friends sometimes in the past, which has already given me the
ability to actually sit back, and really comfortably choose
amongst the available offerings myself, without having to bother
a human, and without having to feel bad about (ab)using their time.
However, the case where a restaurant really has their menu online is rather rare
still in the area where I am. And, it can be tedious to google
for a restaurant website. Sometimes, the website itself is just
marginally accessible, which makes it even more frustrating to
get a relaxed dinner-experience.
I have discovered a location-based solution for the restaurant-menu problem recently.
Foursquare offers the ability to provide a direct link to the menu in
a restaurant-entry. I figured, since all you need to do is
write a single webpage where the (common) menu items are listed per restaurant,
that I could begin to create restaurant menus for my favourite locations,
on my own. Well, not quite, but almost. I will sometimes need
help from others to get the menu digitized, but that's just a one-time
piece of work I hopefully can outsource :-). Once the actual content
is in my INBUX, I create a nice HTML page listing the menu in a rather
speech-based browser friendly way.
I have begun to do this today, with the menu of a restaurant just about
500 meters away from my apartment. Unterm goldenen Dachl now has
a menu online, and the foursquare change request to publish the corresponsing URL
is already pending. I don't fully understand how the Foursquare change review
process works yet, but I hope the URL should be published in the upcoming days/weeks.
I am using Foursquare because it is the backend of a rather
popular mobile navigation App for blind people, called Blindsquare.
Blindsquare lets you comfortably use Open Street Map and Foursquare
data to get an overview of your surroundingds. If a food place
has a menu entry listed in Foursquare, Blindsquare conveniently shows
it to you and opens a browser if you tap it. So there is no need
to actually search for the restaurant, you can just use the location based search
of Blindsquare to discover the restaurant entry and its menu link directly
from within Blindsquare. Actually, you could even find a restaurant
by accident, and with a little luck, find the menu for it by location,
without even knowing how the restaurant is called. Isn't that neat?
Yeah, that's how it is supposed to work, that's as much independence as you can get.
And, it is, as the title suggests, croudsourced accessibility.
Becuase while it is nice if a restaurant owner cares to publish their
menu themselves, if they haven't, you can do it yourself. Either as a user of
assistive technologies, to scratch your own itch. Or as a friend of a person
with a need for assistive technologies. Next time you go to lunch
with your blind friend, consider making available the menu
to them digitally in advance, instead of reading it. Other people
will likely thank you for that, and you have actually achieved something today.
And if you happne to put a menu online, make sure
to submit a change request to Foursquare. Many blind people are using
blindsquare these days, which makes it super-easy for them to discover the menu.
Once upon a time I setup a centralized service for spam-testing blog/forum-comments in real time, that service is 
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I just did some Debian package review in a somewhat unusual way, and I
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It was pretty exciting! At the end of it, I joined #debian-mentors to talk
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Maybe someone else is using iDataPlex HW, so this might come in helpful...
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The summit has been great. It was my third OpenStack design summit, and the
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me!
On Monday, we started by a 2.5 hours meeting with Ceilometer core developers
and contributors about the Gnocchi experimental project that I've started a
few weeks ago. It was a great and productive afternoon, and allowed me to
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been possible in the allocated session we had later in the week.
Ceilometer had his design sessions running mainly during Wednesday. We noted
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