THE BLOG
06/28/2011 03:10 pm ET Updated Aug 28, 2011

Social Impact Evaluation: Useful? Utopian? (Part 2 of 4)

In nonprofit fundraising, in the investment world, in political campaigns, in TV ads and even at grant-seeking research universities, hyping products and services is routine. Propaganda happens.

Nonetheless, for the misdemeanor infraction of enthusiastically summoning the world to address global poverty with a solution that appeals to Western sensibilities (i.e., bootstrap, self-financed business loans), academic researchers have issued a grand jury felony indictment against microfinance. The charge: over-promotion.

A promotional leaflet for a recent book on the topic of scientific evaluation of anti-poverty programs proclaims, "microcredit does not solve poverty." Well, duh, nothing alone solves poverty, a point the authors themselves conclude inside their manuscript.

The mundane verdict that public relations departments proselytize microfinance's impact may sell books, but it also feeds a cynicism about one of the few viable poverty alleviation techniques that has emerged from a developing country. Let's remember that hyping impact is not the same as not having any impact.

In a metaphorical news cycle, microfinance went from "laudatory Nobel Prize winner" to "predatory profiteering" to "not solving poverty." Don't blame the evaluators, consultants or academics, but an unintended consequence of their work could be (will be?) donor skepticism and paralysis.

In my view, microfinance is being unreasonably measured and criticized for what it is not: (a) Microloans are notsavings accounts. (b) Micro-lending to the poor with an entrepreneurial bent is not reaching the poor without one. (c) Individual economic empowerment in remote villages is not macroeconomic development. These criticisms are akin to whining that a rural clinic is not a hospital or an apple is not an orange.

Microfinance has succeeded without much scholarly research or social science oversight. It is a poverty reducer rooted in the non-academic, marketplace realities of the poor: 190 million micro-borrowers enrolled. 97% microloan repayment rate. Billions of social investment dollars at work. Are we hearing the poor here?

Before outsourcing your judgment to the social scientists and economists, you must read University of Michigan Professor Michael Gordon's blog:

The lives of desperately poor people are at stake. If we continue to provide support for methods of microfinance that aren't completely effective, our losses will be modest compared to discontinuing support for ideas that are helping the poor lead more productive lives, with more dignity, even if science tells us they shouldn't be.

Or as NYU Professor William Easterly insightfully writes,

Unfortunately, the books [on anti-poverty evaluation] also indulge another sort of irrationality: the demand for big, general statements....The authors criticize over-promising and generalizing in the aid business, but they too often do their own exaggerating when it comes to what their methods can deliver.

Microfinance has a lot to be proud of -- and a lot yet to improve. About that, everyone agrees. But, a serious discussion does not begin with either sensationalist "gotcha" generalizations or making the poor wait for a perfect solution.

(Next week: Part Three on evaluation methodology.)