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Identifying Independent Measurements of the
Benefits of Microfinance in Bangladesh
How should we measure the effects of microfinance? This is a critical question, because supporters of microfinance will continue to be challenged by those promoting more government intervention and skeptics who question the ingenuity and initiative of the free, responsible and largely female microfinance borrowers. One reason for this skepticism is that it is very difficult to clearly establish any direct causal link from any single development activity or investment to the macroeconomic trends of any country, no matter how large scale and convincing the activities and investments like those of microfinance might be. Direct causality on the macro level takes a very long time to establish objectively, but there are a variety of other indicators to measure and report regularly, including some key macro indicators, such as health.
A couple of such indicators are child mortality and life expectancy. When one compares these statistics, over time, for Bangladesh against what has been achieved in India and Pakistan, a striking trend is seen, as shown at www.gapminder.org (click Go straight to the graph and select India, Bangladesh and Pakistan in the areas of life expectancy and child mortality).Other indicators can also be found, as seen in the following list:
These are impressive improvements, but it may not show up it the macro economic measurements for many years.
The difficulty measuring the macro benefits of microfinance are similar to measuring the productivity benefits of almost any capital investment, even large investments in information technology and telecommunications.
Since the first commercial computers were been installed in the 1950’s capital investment in computers and telecommunications grew steadily, rising to nearly 50 percent of all business capital spending in the US. As Simon London wrote in the Financial Times in 2003, “while the circumstantial evidence was strong, skeptics pointed out that there was no roof of a causal line between technology investment” and productivity. The Nobel Prize-winning economist Robert Solow of MIT declared in 1987 that “we see computers everywhere but in the productivity statistics.” But even though the link with technology and productivity is debated even today, no one is advocating or even considering giving up their personal computers and cell phones.
Nor should supporters of microfinance give in to skeptics who have no alternative approaches other than more government involvement, where the lack of productivity and success is at least solidly proven and well established by the inefficiency of socialist economies everywhere.
Given the difficulties of establishing causal links between microfinance and economic development, what other measurements are credible? There are many other alternative measurements that are more practical and useful than macro indicators, which tend to be politically motivated. More practical measurements of real benefits on the ground include the Grameen bank’s measurement of the following indicators that can be found at www.grameen-info.org: