Microfinance Practice: [MFP] Why are microfinance client numbers increasing?

Dear all,

Once again, I would like to tap from the great knowledge harbored in this group.

There has been a number of debates, posts, findings, thoughts, etc on the evils of micro-finance. People have argued that micro-finance does not result into any positive transformation for the people living in poverty, rather it worsens their (economic) situation. Examples have been drawn from Andhra Pradesh where micro-finance clients committed suicide to free themselves from the "angry" loan officers demanding their money back; also from some country in Asia where a woman sent her daughter into prostitution so that she can repay a loan to an "un-understanding" MFI which denies to restructure her loan or just write it off. So many other examples are found in Africa where clients are locked in offices until the repayment money comes. Apart from the clearly evident forms of "injustice" as these ones, other sectors have also argued that poor people are being robbed because of their ignorance where MFIs charge interest rates that are very high effectively having the potential to dwindle their economic growth. In fact Dr Jason Hickel says "micro-finance doesn't work"; and that "the micro-finance craze has been built on "foundations of sand" because   "no clear evidence yet exists that micro-finance programs have positive   impacts."" Of course many would agree that, just because there is lack of clear evidence on the positive impact of micro-finance, does not mean micro-finance has zero or negative impact.

Regardless of the above thoughts, it seems the number of micro-finance clients keeps on growing, especially in these times when people have realized that micro-finance does not equal to micro-credit. Micro-credit, just as micro-savings, micro-insurance, etc, are just components within micro-finance sector.

1. Do these growing numbers mean that the clients themselves do not see these evils? Or maybe should we assume that micro-finance clients are ignorant or too poor to notice these "exploitative" endeavors?

2. When a micro-credit client invests his/her loan funds into a micro-business, and the business fails to pick-up, is it micro-finance to blame?

3. Is it the whole of micro-finance industry that is to blame? Or there are few components within the industry that invite these criticisms?

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I believe that micro-finance is not a magic bullet that can kill ALL causes and effects of poverty. However, I think that it creates opportunities for people living in poverty, and mostly excluded from financial solutions, to try their luck in the world of financial services. Definitely, some will make it and some will fall along the way but the idea is to get everyone to the "positive transformation" goal. I liked a comment from my friend Tim when we chatted on this issue. He said, 

    "I certainly do agree that micro-finance is not a solution to poverty.  However, I am still hopeful that it     provides a platform from which solutions may arise.  Like any type of financial intervention it grants people     access.  The real work is in the hands of the customers.  In the end it will be their ingenuity, creativity     and hard work that advances their livelihoods. Micro-finance just helps level the playing field (if only a     little) so that the riskier clientele can access the same things that the wealthy do"

I think that micro-finance clients, though poor, are able to make financial decisions that affect their lives. Just as in the corporate world, some people will make decisions that will not go according to their expectations. What micro-finance does is to provide opportunities for poor people to access financial services (both in terms of physical presence of financial services and simplifying processes for a rural poor  woman to transact with a financial service provider). A decision to USE these services now rests in the hands of the client.

Nevertheless, I do agree that the extent to which micro-finance clients can make informed financial service usage decision might be a bit limited. This is due to the fact that these services might be new in their context. Since there are numerous examples of the advantages of micro-finance, I think concentrating on training these clients to be able to distinguish between a good micro-finance service and a bad service would be an ideal step to take.

I think that when a client gets a first loan from an MFI, and s/he comes back for a second one, one of the possible reasons would be s/he satisfied by what s/he benefits from the MFI. It would also be nice to understand the net promoter score in the micro-finance industry. If it is negative, then pheew there is no future. If it is positive, and thankfully higher then it would mean the clients are happy with the benefits that they get from the MFIs are are able to recommend others in their circles to join.

Disclaimer: I do not intend to invalidate the points that critics of micro-finance make. I personally salute their efforts because they help to shape a good direction for micro-finance industry and basically because they mean well. I have never come across a critic that fights for eradication of micro-finance, they all point out the negatives of which if addressed, the industry would be a better place.