Archive for the ‘Educational’ Category

Looking at Development

Hello all,

Check out this insightful article by Kenyan economist James Shikwati. He questions the real goals and effects of development and the role of the G8.

“Development is the Ability to interpret/understand the World and creatively/efficiently respond to the challenges that confront humanity in order to increase the levels of human comfort on earth. The current development model sustains Africans on the “scratch the soil” level while they (G8 and re/emerging economies) import raw materials and add value to them. Adding value to African raw materials enables importing countries to grow their industries, financial and knowledge sectors while the African is left with hoe in hand scratching the soils for minerals and crop. Please note that even chicken in Western Kenya scratch the soil. Little ingenuity is needed in the scratch the soil model!”

The president of Rwanda, Paul Kagame, put it nicely; “The debate about good and bad aid misses the point. Aid must do things that wean people off aid—if not, aid is a failure.” (from a newsweek column by Fareed Zakariah)

Dambisa Moyo, Zambian economist and author of Dead Aid, argues that foreign aid has not helped Africa and may have even made things worse (Munk Debates: Dambisa Moyo argues in favour of …).

Although far from perfect, the microfinance sector has certainly begun to shift the focus of development strategies away from handouts and onto more innovative solutions. However it may also be prone to the same ailment as traditional aid. Ideally microfinance should help to bring about a situation in which it is no longer needed or useful: real development.

So is microfinance actually furthering development? Some new studies on the effects of microcredit from MIT and IPA (Innovations for Poverty Action) are not terribly conclusive on that front. Check out a review from the Economist on this here.

What is clear is that there is no magic solution. Microfinance certainly has its benefits and its place, however it is crucial to keep in mind the real goal of any poverty alleviation program: to eliminate the very need for its existence.


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Just a little teaser for the topic of our Spring Colloquium (information will be posted soon!).

Though this is not explicitly microfinance related, this kind of innovation in health care is interesting to keep in mind when discussing development issues.

“Everyone is willing to throw in aid to developing countries. But talk about sustainable investment, no one is interested!”

Definitely thought provoking.

Watch. Think. Get involved.

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In her paper, “Banking on Each Other: The Situational Logic of Rotating Savings and Credit Associations,” UC Davis Sociologist, Nicole Woolsey Biggart makes an attempt to determine under what social conditions microlending and rotating savings and credit associations (RoSCAs) are likely to succeed or fail.

Since Microfinance has been spreading very quickly, it is important to determine the situations under which it may succeed or fail. While in the economic logic of credit granting, large numbers of lenders are paired with large numbers of borrowers who are screened for creditworthiness. The use of large numbers creates a sort of safety buffer for default since risk is spread over a large number of transactions. Roscas and Microfinance, on the other hand, operate on a similar logic—with the aim of lowering default—but by utilizing different structures. Instead of spreading risk over a large number of transactions, tight-knit groups in effect enforce loan repayment, and by doing so drastically reduce risk. Such social enforcement allows for those with no credit to get loans, and for those loans to be given without a great fear of borrowers defaulting on the loans.

Due to the high reliance on social enforcement, there are only certain settings where less regulated or informal financial institutions can be expected to succeed. The following five characteristics of social settings were picked out by Biggart as conducive to Microfinance and Roscas.

1. Communally based social order

2. Obligations are collective

3. Social and economic stability of individuals

4. Social and geographic isolation

5. Similarity of social status

The “Community based social order” condition is one that indicates the societies must be “organized by kinship networks, clan membership, and common identification with a native place or place of cohabitation.” Furthermore, this means that the society can act as a powerful socializing and coercive agent over the individual. A highly atomistic society would not meet this requirement.

Following the social order, “collective obligations” also serve to reinforce the individual’s obligation to the group—that, due to high normative pressures, the individual would not let the group down.

The last three requirements serve as a sort of social screening mechanism that is dependent on the first two factors.

Being able to judge the social and economic stability of individual actors is crucial for developing trust in the interactions. Members of a Rosca, for example, would not want to be sharing money with someone with a questionable history of monetary decisions; due to high integration of community members, this information would be known.

The isolation factor is an ecological view of the community in that if the community is relatively isolated from other communities the community members will be (and will remain) highly integrated into the group. If an individual is “stuck” in a community, the costs of losing trust or standing in the community is much higher.

The concern of similar social status is that of any individual higher in social status than that of most members of the group being able to dominate the group. Such domination would undermine the other characteristics of the group that make it work.

These findings should aid in decision making when determining future microfinance or other development efforts. No simple injections of money or creations of microfinance programs will lead to development necessarily. The local community must be appropriate for and ready to receive aid.

See Biggart’s paper here.

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Information on the implications of UC Davis Sociologist, Nicole Biggart’s paper, “Banking on Each Other: The Situational Logic of Rotating Credit and Savings Associations.”

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Anyone with a blog is under the  impression that the things they write are of some importance. We too are under such an impression.
According to Robert Putnam in his book Bowling Alone (2000), “computer mediated communication so lowers the threshold for voicing opinions that, like talk radio, it may lead not to deliberation, but to din.” While we here at the Princeton Microfinance Organization may only be exacerbating the imbalance between talking and listening that has become a feature of Internet based discourse, we aim to raise questions, challenge ideas and facilitate informed, scholarly dialogue that will hopefully produce awareness and even change.

The issue of microfinance is a hot one. There are questions as to its applications, its various impacts, and the conditions that facilitate its use. Furthermore, there are broad questions regarding international development, the challenges it presents and our role in making it happen.

This blog will serve as an intermediary between scholarship, policy and advocacy. We aim to have consistent updates on the world of microfinance and global development. We aim to promote scholarship and discussion–ultimately, informed awareness.

Welcome to the Princeton Microfinance Organization’s blog!

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