Does Microfinance Work?

Think Again: Microfinance – By David Roodman | Foreign Policy – Interesting article about the attractive notion today of microfinance as the antidote to poverty. These kinds of “reality checks” are important in such industries to discourage some of MF’s most avid supporters from getting carried away in the idea itself (and not in its results). Moreover, when they provide an objective validation of how such efforts are ultimately worth it, even when the idealism is stripped away, it adds more strength to proponents’ arguments.

As for a veritable debate… and a much more heated criticism vs. defense of microfinance, read the Center for Financial Inclusion‘s coverage of the Jan 30th Roodman-Bateman debate (or, better yet, watch the rather dramatic webinar recording).

MF critic Milford Bateman argues the necessity to shift resources initially piled into (the arguable failure of) microcredit instead towards investment in related, but fundamentally different, economic development tools such as credit unions and state development banks. For an example of the latter topic in practice, see this article on state bank BNDES’s contribution to Brazil’s economic development.


Let’s start at the beginning

Well, almost.

Lacking inspiration for a first post, I thought I would give a quick shout out to the organization which gave me my first real introduction to the field of microfinance – Banco Palmas aka Instituto Palmas. To avoid explanation, I sometimes, admittedly, lump them into one entity. I encourage you to read the organization’s Wikipedia page (created by yours truly) for more details!

I worked with Banco Palmas as a communications consultant between 2010 & 2011. A pure grass-roots organization initiated by the residents themselves of the Brazilian neighborhood Conjunto Palmeiras in the outskirts of Fortaleza, Brazil, Banco Palmas has developed today into a national model for community economic and social development – with 53+ banks modeled after Banco Palmas currently operating throughout Brazil – and an international model for social entrepreneurship, thanks in [large] part to founder and current director, Joaquim Melo. Instituto Palmas has become one of the leading institutions in the Brazilian government’s economic solidarity movement, working very closely with the National Secretary of the Solidarity Economy (SENAES).

The concept of the “solidarity economy“, unfortunately, isn’t so popular in the US. By that I mean that alot of people would have no clue as to what this means, and rightfully so. I didn’t know much about the concept until Banco Palmas. In Brazil (and many other countries), however, this idea is more common. It is often seen in conjunction with, even indispensable to, community banks. The belief is that community development banks act as instruments to eradicate poverty, community by community, by fostering economic development for themselves through varied means (e.g., local consumption and production, the use of social currencies, etc). Read more about Banco Palmas to see these economic development tools in practice.

If you’d like any more details or resources, please feel free to reach out! Or if you want to keep up-to-date with what is going on at Banco Palmas, check out their Facebook.

P.S. That picture was taken on the way back to my desk after a particularly good rain, I assume. Look at those greens!