Due Diligence: An Impertinent Inquiry into Microfinance

Microfinance:Few development ideas have been so buoyed by high expectations in recent decades, and few have been so buffeted by difficulties in recent years. Images of microfinance lifting people out of poverty now compete with ones of the poor driven by debt to suicide. Where does the truth lie? David Roodman investigates in Due Diligence. He finds no evidence that small loans lift people out of poverty en masse but argues that financial services, like clean water and electricity, are essential to a modern life. The practical question is not whether microfinance should continue, but how it can play to its strengths, which lie in providing useful services to millions of poor people in a businesslike way. Due Diligence is the most complete investigation ever into the sources and consequences of microfinance. Roodman explores the financial needs of poor people, the history of efforts to meet those needs, the business realities of doing so, and the arguments and evidence about how well modern microfinance is succeeding. Drawing on this comprehensive survey, he offers practical recommendations to those involved in providing microfinance services, including donors, social investors, and microfinance leaders:

1. Eschew any drive to extend credit to the poorest.

2. In general, invest less in microcredit for fear of bubbles.

3. Favor the development of safer services such as savings, insurance, and money transfers.

4. Look to new technologies to revolutionize financial services for the poor.