The 6th Annual Chicago Microfinance Conference took place on Friday, May 7 at University of Chicago Booth School of Business.

The story of microfinance has always been compelling in its simplicity: A poor entrepreneur receives a loan. The loan enables her to purchase equipment or goods. She is then able to sell or increase sales of homemade clothes or fresh fruit. The new or increased sales bring in more income which she uses to pay back the loan, feed her children, and put them through school. The experience is repeated and the business grows and family fortunes improve. The cycle of poverty is broken.

This story is true, and Opportunity International sees it played out over and over again among our nearly 2 million clients.

But the lives of the poor in developing countries are much more complex. A sick family member can take time and money away from an otherwise profitable enterprise. Political fortunes for the country’s leaders change, disrupting the business environment. Inflation drives up the cost of goods beyond the reach of the poor, even when they have microfinance loans. And while savings accounts and insurance provide some protection, for many of the poor their financial lives are precarious.

For academics who study microfinance — and hope to show direct correlation between a loan and increased income — this has led to some incredible frustration. The frustration was evident on a panel at last Friday’s Chicago Microfinance Conference called “Impact Monitoring and Reporting: Heading Towards an Industry Standard.”

Moderated by Alicia Menendez, an associate professor at the University of Chicago’s Harris School of Public Policy, the panel tried to discuss the impact of microfinance in light of three recent studies (summarized by David Roodman, a fellow researcher) that show just how complex and difficult it is to show that loan X equals an increase in Y amount of income.

In general, experts find that microfinance is good and it works. But in the messy realm of life in poverty and human choice, it is hard to tie direct lines of cause and effect. Ruth Mbeba, a panelist from Mennonite Economic Development Associates, agreed. “Poverty is complex.” It is hard to attribute a specific output to a specific intervention. And yet, she said, she has seen the tremendous impact that access to finance can make.

Charles Belanger of FINCA Internationalencouraged the audience not to leave out the clients’ perspectives. “What services would they like to have? What will help them?” Clients know what is best for them. So when clients are loyal to a microfinance provider, repeatedly accessing their services, Charles said, “This gives us an idea of our impact.”
People interested in the question of impact, said Lori Scott of Calvert Investments, need to be comfortable with a degree of uncertainty. “How do you measure the impact of a loan in Haiti versus Kenya?” The differences in economic opportunities and basic needs are too great. And measuring the impact in one area doesn’t mean that the same process will discover an impact in another area.

Lisa Thomas from ShoreCap Exchangeencouraged the audience to have different expectations of microfinance. The point, she said, was simply to expand access to financial services, which allows people to alleviate the effects of poverty, better feed their children, and send their kids to school. While this may mean that the poor entrepreneur never works her way out of poverty, as many in developed countries would define it, such access to financial services does break the cycle of poverty. With well-nourished and educated children, they will not suffer from poverty. “We want to create access to capital,” she said. “We know that’s good. Providing financial services to people without them is a mission unto itself.”

Academics and practitioners are equally frustrated in their attempts to know just how, why, and to what extent microfinance alleviates poverty. Nothing that was said on Friday’s panel changed that. Academics hope to understand what results in poverty alleviation so that they can influence governments and foundations that are spending money to help poor people. Microfinance organizations hope to know better why their services work, to be able to design new products that will better meet the needs of clients and improve the likelihood that people will work their way out of poverty.

Learning more about the needs of poor families and how they can use financial services is essential. But as is true in so many areas of international development, it is tough work.

Check back in tomorrow to read the next in our series of blog posts from the 2010 Chicago Microfinance Conference.

Eighty percent of the Manila metropolis and nearby provinces were severely devastated. Hundreds of our clients lost homes, and we heard that some clients and their families died from raging waters and floods. We don’t know yet the exact number of casualties, but it was really disheartening to see the sufferings of my fellow Filipinos. The floods severely affected both rich and poor. My heart bleeds every time I watch and hear stories of people killed and missing since last Saturday. The devastation is heart wrecking. According to our weather station, about 34.1 cm [13 ½ inches] of rain fell in just six hours. Three of our staff members are stranded on the second floor of their houses, and our driver and his family had to leave their house and transfer to their neighbor’s, who has a second floor.  If they hadn’t, they would all be drowned. Where I live, 400 people were forced to wait on their rooftops for rescue boats. The floodwaters in the streets reached four feet. We are going to deliver potable water to our staff, because there is no electricity in their place and no potable water available in the nearby market. At one branch, three clients died from drowning, and 42 staff and their families lost their homes. The whole town of Cainta Rizal, where the bank operates, is 100 percent under water. The office is preparing space to be used as an evacuation center for the 42 staff and their families because all government evacuation centers are full. One of the bank’s communities in Manila has floodwaters that reach as high as 20 feet. Gerry Anit, the VP for operations, had to evacuate because his home was submerged in water. He says it will probably take one month before floodwaters subside. In addition:

• 1000 families were affected at a location in Balanga City. Evacuation centers and the communities where they operate are still flooded.
• 3000 families at the offices in Valenzuela City were greatly affected.
• At the location in Makati City, outside of Manila, one client and his entire family died when their house in Quezon City was swept away by raging floodwaters.

We need much prayer from you, and if you are moved by God to mobilize resources for the people and clients here, we would appreciate it. Right now some of us are sharing our own clothes and money with those who are severely affected.

Not many Nobel Peace Prize winners remain unknown in their home country. What is more surprising is that an estimated one-sixth of the world’s population is alive because of a man virtually invisible in the U.S. “Though barely known in the country of his birth,” wrote Gregg Easterbrook in his Atlantic profile from a decade ago, “elsewhere in the world Norman Borlaug is widely considered to be among the leading Americans of our age.” Mr. Borlaug died last week at the age of 95.

Borlaug is credited with spurring the Green Revolution, the agricultural advances that increased yields around the globe. Essentially, his work allowed the increase in food production to exceed the increase in population, allowing a billion more people to survive than would otherwise have.

Despite, his successes, there is still a great need for continuing the work of helping people produce enough food for themselves. That is true particularly in Africa, the one continent on which Borlaug’s work has not taken root. With new agricultural techniques, seeds, and fertilizers, the continent’s farmers could be tilling the world’s next “breadbasket,” producing not only food but also economic growth outside the agricultural economy. As the World Bank says, “Estimates show that overall GDP growth originating in agriculture is, on average, at least twice as effective in benefiting the poorest half of a country’s population as growth generated in nonagricultural sectors.”

In his Nobel acceptance speech, Borlaug asked who was willing to take up the cause of his life.

“Where are those leaders who have the necessary scientific competence, the vision, the common sense, the social consciousness, the qualities of leadership and the persistent determination to convert the potential benefactions into real benefactions for mankind in general and for the hungry in particular?”

Opportunity’s agricultural advisor, John Magnay, is one of those leaders. He is working on new ways to bring advances in farming techniques to Africa. John, an agriculturalist who has spent his entire career living in Africa, believes that what has hindered Borlaug’s success on the continent is the lack of developed markets for farmers’ produce. At a breakfast meeting in 2004, John was able to explain to Borlaug his analysis of how to achieve a “green revolution” in Africa. John says:

“The technique of introducing improved varieties and fertilizer had achieved higher yields, but ironically the weakness of the output markets in Africa had meant that in good production years the surpluses produced had depressed the local market prices to a point of financial ruin for farmers.”

John’s and Opportunity’s response is to do more than increase yields, but to finance and develop markets where farmers can sell their crop. This is a vision that Norman Borlaug personally encouraged John to pursue.

The two met on four other occasions, each of which was an honor for John, who says, “Norman Borlaug was my hero when I was at university in the mid 70′s. He had just won the Nobel Peace prize, and his work on developing high-yielding varieties of wheat and rice and basically saving Asia from starvation was inspirational.”

His work is still inspiring. While, we have a long way to go before seeing the successes that the green revolution achieved in Asia, we’re working hard at it.

(Photo courtesy of the International Rice Research Institute. All rights reserved)