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The fifth meeting of the AHRC Microfinance Research Network was held on 4 November 2010 in the University of Birmingham Conference Centre. This event was jointly organized with the Centre for European Research in Microfinance (CERMi) in Brussels, co-directed by Dr Marek Hudon, and the two themes were: women and microfinance and donors and microfinance. We were very pleased to have as speakers the distinguished Patrice North (University College London), Roy Mersland (University of Agder, Norway), Ahmad Nawaz (Pakistan Institute of Development Economics), Bruno Molijn (Oxfam Novib) and Bernd Balkenhol (the ILO).

Patrice North has an extensive background in social development planning, and started the day with a talk on whether microfinance is a constraint to poor women’s freedom and achievements or not, especially in Tanzania. According to North, the suggestion that microfinance can empower women can be understood either from a purely economic perspective, which emphasizes wealth creation and market freedom, or from a more critical perspective, which emphasizes agency and social power relations. Whether microfinance comes out as very good or very bad for women essentially turns on what perspective you take.

Roy Mersland has a background as a microfinance practitioner in Ecuador but has more recently taken an interest in quantitative studies on the efficiency of microbanks. One of the topics he has studied is whether focusing on female borrowers makes economic sense for the microbank as such, and he has built up a database on which he has performed statistical analyses on multiple variables related to this. The answer is actually not a resounding yes. While it is true that women have better repayment rates (which often is used as an argument in the industry), they generally take out smaller loans which incurs a cost on the bank and so the net result is roughly zero. According to Mersland, this results indeed suggests that microbanks could be accused of a kind of discrimination against men.

Ahmad Nawaz related the results of statistical analyses of a similar kind but concerning the issue of the effectiveness of donors’ funding on the economic success of microfinance institutions (MFIs). MFIs can get external funding of many kinds (direct grants, revenue grants, paid-up-capital, discounts on public debt) from a variety of sources (IFIs, bilateral donors, multilateral donors, private investment funds, private banks, own deposits). Interestingly, Nawaz’ analysis suggests that private investment capital now constitutes over 30% of all subsidies to MFIs. More to the point, however, the results indicate that deposit-taking is bad for business while subsidies, especially from private banks and bi- and multilateral donors, increase efficiency. And the best way of subsidising MFIs seems to be through discounted credit lines.

Bruno Molijn is policy advisor for microfinance to Oxfam Novib, a Dutch development NGO, and basically gave us the inside story of how a donor in the field may reason. According to Molijn, microfinance is not an easy field for NGO-donors since it often balances in between development aid and commercial finance. Molijn’s personal stance is that it is important not to forget the issue of social impact and to support initiatives which seek to promote transparency in the field. MFIs sometimes focus too much on the instrument they have (microcredit) and too little on the needs that it is supposed to meet. But of course fully understanding the latter is not always easy; even within a rural context Molijn suggested that there are many “worlds” of clientele with different needs.

Finally, Bernd Balkenhol talked about microfinance from a public policy perspective. When giving advice on what MFIs that donors should sponsor, Balkenhol suggested, it is important to remember that MFIs really come in many different forms and shapes. Now could one really design some kind of numerical measure of the performance of MFIs which donors could use? Since different MFIs operate in different regions, have different input prices etc. and also ultimately have different goals, Balkenhol suggested a kind of relativised concept of efficiency (“the production possibility frontier”) which he suggested would be the best alternative. According to this suggestion, the efficiency of an MFI is essentially not determined independently but in relation to “peer groups” of relatively similar MFIs.

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