It didn’t used to be controversial.
But one way to say this is that nearly one thousand people turned out for a Seattle event Tuesday to celebrate and support an anti-poverty scheme that many experts in the aid and development community contend doesn’t work.
“We have something like $70 million in loans to 57 partners in 12 countries, serving about 2.2 million clients each of whom support on average a family of five people,” said Rick Beckett, president and CEO of Global Partnerships, a Seattle-based organization and one of the biggest practitioners of microfinance anywhere.
The organization, founded in 1994 by local philanthropists Bill and Paula Clapp and focused primarily on assisting the poor in Central America, held its annual fund-raising ‘Business of Hope’ luncheon yesterday. Nearly a thousand people were estimated to have attended. The organization raised $540,000 for microcredit last year and hoped to do better this year.
I asked Beckett how he has been able to dupe so many folks: Don’t all these people know that many experts in aid and development say microcredit loans don’t work to raise people out of poverty? That it’s a sham, and even an abuse?
“That’s sort of a leading question, isn’t it?” he laughed.
The rise and fall of the public image of microfinance has been misleading at both ends of the spectrum, Beckett said.
When the pioneer of this micro-lending strategy, Muhammud Yunus, won the 2006 Nobel Peace Prize for his promotion of this innovative, market-based approach to fighting poverty, he said, the mainstream media and many in the humanitarian community — not to mention the financial sector — celebrated it as the ‘cure for poverty.’
I should note that Yunus himself was perhaps guilty of overstating microfinance’s promise. In any case, the approach caught on and grew explosively across the world.
Then, thanks largely to some overly ambitious — some might say greedy and self-serving – microfinanciers in India who seemed to making a lot of money at the expense of the poor, the public image of microfinance or microcredit (the terms are often used interchangeably, which isn’t quite accurate) plummeted.
“There’s no question that there were abuses, and there still are problems like this,” Beckett said. He said Global Partnerships has stopped funding some programs in Central America due to what he described as an excessive focus on making money as opposed to serving a social mission.
“The purpose of the program is not just about giving people loans like these were magic pills or something,” he said. Microcredit only works, he said, if it is given by an organization connected to the community it serves with a clear social mission.
“One way to make sure you make that connection is to partner these loans with health programs, education programs or projects that help farmers grow more crops, things like that,” Beckett said. “Look, I’d say we now have a more realistic view of microfinance. It’s never been a panacea or the single answer to poverty. It’s just one tool.”
And like all tools, he said, sometimes it works and sometimes it doesn’t. Global Partnerships has changed its approach — tinkered with the tool a bit and added new parts — aimed at making it work a bit better, and accomplish a bit more than just raise incomes.
“There are those experts (he does the air quotes) out there who will say we have no solid evidence,” Beckett said. There are the analysts and economists who establish their own metrics and rigorously measure the overall impact of microfinance, he added, and who conclude microfinance in general does not appear to reduce poverty for the average poor household.
Averages are statistically dubious, he noted, as are generalizations and, arguably, the experts’ ability to measure overall socioeconomic improvement. Life is complex and hard to measure, Becket said, and we do need to improve our ability to evaluate performance in microfinance. But, he adds, a ;ack of evidence is not the same as evidence of lack.
Millions of people have received loans from the Seattle organization or its partners, Beckett noted. It’s almost impossible to imagine that nothing will have gone wrong given the scope and breadth of all this, he said. But if the most extreme critics were right and all these millions of people were not being helped or, worse, being driven further into poverty (as he agreed did happen in India, in some cases), wouldn’t we all be hearing about it?
“Things do sometimes go wrong, but that’s how we learn,” Beckett said. “I think we need to be careful not to throw the baby out with the bathwater.”
One person who needs no convincing is Brigida Rodriguez, a woman from Santo Domingo in the Dominican Republic whose life has been transformed thanks to what started as a $200 loan.
“My situation was very bad,” said Rodriguez, who spoke at the luncheon with the assistance of a translator. A single mother, already poor, she found herself sinking deeper into poverty due to her own mother falling ill. “I said, ‘My God, what am I going to do.”
She could not get a traditional loan from a mainstream bank, she said, because she had no collateral. The Catch-22 of poverty. Those with money and assets can get loans. Those who need the money most can’t get loans. This was the dilemma Yunus’ approach, microfinance, sought to resolve.
Through a Haitian partner organization of Global Partnerships, Fonkoze, which in turn supported a smaller microcredit loan organization Esperanza, Rodriguez found a way out.
“Sponge cakes,” she said, laughing. Rodriguez said she got the idea to start a baking business when the head of a nearby construction crew came by her house to ask what smelled so good. “Now my sponge cakes are selling like hot cakes!”
They laughed. They cried. Rodriguez got everyone laughing and then, just as quickly, got them to tear up. She thanked the Seattle crowd for what they had done for her, for her mother and her children — for thousands of poor families like hers who have already been helped and for the thousands more yet to be helped.
“Without all of you, none of this would have been possible.”
What a bunch of dupes. Not.