Wokai Blog: Wokai's response to Milton Bateman's book: Why Doesn't Microfinance Work? The Destructive Rise of Local Neoliberalism: Wokai China Microfinance Blog

This post was written by Liz Blase from Wokai HQ in San Francisco

Milton Bateman, in his new book 'Why Doesn’t Microfinance Work? The Destructive Rise of Local Neoliberalism' － posits several critiques of microfinance and the impact that it has had over the last 30-40 years:

“[Microfinance] provides scarce financial support to tiny businesses that don’t have a chance at getting bigger or making a difference.”
“The microfinance industry thinks there is a quick fix to development through tiny businesses, and I think that is fundamentally wrong. Sustainable development costs money and it takes time.”
“The problem with microfinance is that as much as 90%-95% of microenterprises fail over five years, and of the ones that succeed, very few become large enough to sustain a larger development agenda. We are simply not creating the businesses of tomorrow.”

We very much appreciate the critique of Bateman—open discussion about impact and methodology is critical to progress and advancement in every industry. Particularly in microfinance, such a call to action for our industry to articulate its standards of success is notable. The still nascent microfinance field has few such benchmarks at this point in its history.

However, based on our experience in the China microfinance sector, we disagree with Bateman in several of his points regarding the short and long term impacts of microfinance and want to make known the positive effects of this emerging industry in China.

Bateman’s points of view and strong call to action for the microfinance community, of which we are a member, are noteworthy and laudable in their articulation, however we must disagree with the disparagement of the short and long term effects of microfinance in the context with which we are most familiar: China. Wokai works with two field partners in rural China to redistribute contributions from individuals all around the world to entrepreneurs in Inner Mongolia and Sichuan in loans of around $500.

Microfinance is a young sector globally (particularly young in China); yet, in our experience, these questions of impact, accountability and efficiency are not without positive answers. The track record of Wokai’s borrowers shows that microfinance has had extremely positive effects—monetarily and socially—in both the long and short term.

While Bateman condemns that most borrowers fall into a cycle in which they are dependent on debt, our experience has shown otherwise. Microloans have enabled thousands of borrowers to set up businesses that produce a profit and can exist on their own without additional capital investment. In our experience, people who have continued to take out loans have done so with an eye to growing their businesses by increasing the capital investment and ramping up production—not to stay afloat. One example is Fu Yajun who borrowed a few hundred dollars last year to plant a few mushrooms, and has borrowed again this year to scale up her operations after encountering high and growing demand. Bateman is correct that the microfinance community needs to better keep track of statistics showing this type of progress (overall increase in incomes over so many years, etc.). However, a lack of statistical information is by no means an indicator that this industry is failing to provide financial support and enhance economic well-being of the generations of people who have experienced this type of assistance thus far.

We take much greater issue with the dismissive treatment toward the intensely profound ways that microfinance has benefitted its targeted communities in non-economic ways, that is social and political, as well as the way that Bateman has forgotten to consider the long term effects of the industry on borrowers and their progeny.

Microfinance is revolutionizing the role of women in communities around the world. A few decades ago, in many places where microfinance has taken root, women were relegated to purely domestic roles and largely unseen in the political sphere. The opportunity to manage their own money, participate in lending groups, and lead and counsel others based on their success has given women a path out of their traditional roles into the newer sectors of business and politics. One of Wokai’s borrowers rose to such a level of respect after the success of her microenterprise and sound management of money that she has now become mayor of her village—and in this role inspired countless of other women and girls with the confidence to seize new opportunities rather than shy away.

The impact of microfinance on the lives of children and the generations of young people who depend on current borrowers cannot be underestimated. While the particular businesses being funded by microloans may not become scalable to the level of Google or major production factories, they provide the means for children to receive an education beyond elementary school. In a place like China where the wealth gap is severe and growing—we have to remember that it started opening only a few decades ago and that only one or two generations of education separate some of today’s billionaires in Hong Kong from those struggling to feed themselves in the rural fields of Sichuan. If microfinance isn’t creating immediate and steeply increasing wealth for a family, it might well be providing the opportunity for children to find wealth beyond their parents’ dreams by enabling them to attend high school.

Finally—Wokai, like many other microfinance institutions, does not subscribe to the ‘venture capital’ model of microfinance and development that Bateman seems to be advocating. As our objective is not to make money for ourselves or only a few individual entrepreneurs, we do not throw medium/large amounts of investment money at promising seeded businesses with the expectation that most will fail but that an ‘Apple’ will emerge. Many microfinance institutions, such as our partners and us, aim to provide as many borrowers as possible with an income and a degree of control over their lives that they would not be able to find serving at the hand of a factory boss or as a farm hand themselves. Contentment is the goal of most micro-entrepreneurs—not extreme wealth—and thus slow growth and patience has been the name of the game for the majority of our nonprofit industry.

In sum, while we do very much appreciate the critique of Milton Bateman and his call to action, we urge that readers not fall prey to his infatuation with short-term profits. Rather, we hope everyone will realize and appreciate how positively microfinance has reverberated and continues to ripple through the lives of millions of women, children, and impoverished people around the globe.

Read an interview of Milton Bateman on Microfinanceinsights.com