The GiveWell Blog

Microfinance where access already exists

A key argument for supporting microfinance is that “Millions of families are … without access” to financial services.

Families may often lack access to credit, but they don’t always – and microfinance institutions may not always be clear on which situation they’re dealing with.

A 1999 paper by Brett Coleman (PDF) aims to examine the impact of two microfinance nonprofits in Thailand. Prior to a recent wave of strong studies, this paper was one of the most rigorous impact evaluations available, and it found no positive effects (and some negative ones) for access to the nonprofits’ services. But to me, its most surprising finding was that

many households … have access to low-interest institutional credit, the most frequently used source being the state-run Bank for Agriculture and Agricultural Cooperatives (BAAC), which serves 4 million Thai farm households (84.5% of all farm households in the country) with subsidized low-interest … loans.

In other words, nonprofit lenders were working in an area where there was already an enormous, state-run source of credit. I used to be under the impression that microfinance charities wouldn’t possibly go into an area where a quality substitute was already available, but I’m no longer sure. And when we ask microfinance charities for information about what other sources of credit are available where they operate (and whether their clients are using them), they often have little (or no) such information.

There’s a parallel to the case of Village Phone. Unfortunately, just because a charity is selling something doesn’t mean they’ve established a true need for it.


  • An NGO worker on November 22, 2009 at 12:57 am said:

    Your summary has a ring of truth to it but it is too simplistic.

    First, you a quoting a report that was published 10 years ago. This means that the data is probably older. A lot of things change in 10 years. You may want to quote studies that have been published in the past year or so instead.

    Second, in terms of microfinance….
    People can always borrow. Moneylenders exist everywhere. Charities will always work in areas where lending already happens. Government programs exist nearly everywhere as well. This doesn’t means that the program are suited to the needs of the clients. Requirements to get loans from government programs are usually quite onerous. From what I’ve heard, loan sizes is a significiant problem in the Thai context.

    The report quotes that the BAAC gives loans with subsidized interest rates. The problem is what will happen when the subsidized loan programs stop…. as it what is happening in Thailand now. Charities and non-profit try to set up an alternative program because subsidized programs always end. Perhaps charities are more long-term focussed on on solving problems then.

    While your viewpoint is a bit too simplistic in many ways, I do agree with you that many charities don’t take the time to research the situation well before starting a program. This is a definite weakness that I see happening as I work in the development sector.

  • We aren’t trying to argue from one study that this is always – or usually – the way it is. It’s just a vivid example of what seems like inadequate knowledge of local context – and overestimation of the need for a product – on the part of nonprofits. (When we are making more general arguments rather than give examples, we do try to cite more recent studies.)

    It’s possible that it was the researcher who was inadequately informed, and that the nonprofits had good reasons to be there (perhaps along the lines you cite). However, I would have guessed that such reasons would have made it into the paper. And the negative finding of the study – which, while not a randomized controlled trial, still appears to have an unusually good design for this area – is also worth noting.

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