Due Diligence: An Impertinent Inquiry into Microfinance [Paperback]

David Roodman (Author)

Book Description

Publication Date: December 19, 2011

The idea that small loans can help poor families build businesses and exit poverty has blossomed into a global movement. The concept has captured the public imagination, drawn in billions of dollars, reached millions of customers, and garnered a Nobel Prize. Radical in its suggestion that the poor are creditworthy and conservative in its insistence on individual accountability, the idea has expanded beyond credit into savings, insurance, and money transfers, earning the name microfinance. But is it the boon so many think it is?

Readers of David Roodman's openbook blog will immediately recognize his thorough, straightforward, and trenchant analysis. Due Diligence, written entirely in public with input from readers, probes the truth about microfinance to guide governments, foundations, investors, and private citizens who support financial services for poor people. In particular, it explains the need to deemphasize microcredit in favor of other financial services for the poor.

Editorial Reviews

Review

"David Roodman has been the most consistent and articulate analyst of microcredit in recent years." —Muhammad Yunus, founder, Grameen Bank

About the Author

David Roodman is a research fellow at the Center for Global Development. He has been architect and manager of the Commitment to Development Index since the project's inception in 2002.

Product Details

• Paperback: 275 pages
• Publisher: Center for Global Development (December 19, 2011)
• Language: English
• ISBN-10: 1933286482
• ISBN-13: 978-1933286488
• Product Dimensions: 6 x 0.9 x 9 inches
• Shipping Weight: 1.1 pounds (View shipping rates and policies)
• Average Customer Review: 4.8 out of 5 stars  See all reviews (4 customer reviews)
• Amazon Best Sellers Rank: #284,100 in Books (See Top 100 in Books)

More About the Author

David Roodman is a senior fellow at the Center for Global Development focusing on microfinance, debt relief, and aid effectiveness. His widely praised book Due Diligence confronts questions about the impacts of microfinance and how it should be supported. He wrote the book through a pathbreaking Microfinance Open Book Blog, where he shared questions, discoveries, and draft chapters.

Roodman has been architect and manager of the Commitment to Development Index since the project's inception in 2002. The Index ranks the world's richest countries based on their dedication to policies that benefit the 5 billion people living in poorer nations; it is widely recognized as the most comprehensive measure of rich-country policies towards the developing world.

Roodman has written several papers questioning the capacity of common cross-country statistical techniques to shed light on what causes economic development. He co-authored a 2004 American Economic Review paper that challenged findings of World Bank research that aid works in a good policy environment. His non-technical Guide for the Perplexed builds on analysis of methodological problems and fragility in other studies. Among econometricians Roodman is best known for his computer programs that run in the statistical software package Stata; articles about them won him the inaugural Stata Journal editors' prize in 2012.

Roodman previously worked at the Worldwatch Institute, where he wrote three monographs on environmental issues, and one on debt, Still Waiting for the Jubilee: Pragmatic Solutions for the Third World Debt Crisis. He authored the book The Natural Wealth of Nations: Harnessing the Market for the Environment, which Foreign Affairs called "required reading for legislators around the world." The Japanese edition garnered him a selection as one of "The Outstanding Young Persons" of 2003 by the Osaka Junior Chamber, which led to an audience with the Emperor and Empress.

Roodman spent academic year 1998-99 on a Fulbright in Vietnam. He has never taken a course in economics or statistics.

Most Helpful Customer Reviews

6 of 7 people found the following review helpful

5.0 out of 5 stars An outstanding investigation of the realities behind microfinance May 17, 2012

By John Gibbs TOP 500 REVIEWER

Format:Kindle Edition|Amazon Verified Purchase

It is impertinent to question the effectiveness of charitable efforts, and this makes it difficult for anyone to raise doubts about the practice of microcredit, which involves lending small sums of money to the poor at high interest rates. But if the purpose of the charitable efforts is to help the poor, rather than to gratify the donors, then someone really does need to investigate whether the practice actually works. That person is David Roodman in this book.

The quick - and for most donors very disappointing - answer is that there is no convincing evidence that microcredit is an effective tool for bringing people out of poverty. There are many stories of people who have indeed worked their way out of poverty after accessing microcredit loans, but there are also many stories of people who have worked their way further into debt. According to the author, the most reliable research into the effectiveness of microcredit does not indicate any net positive effect on the incidence of poverty. Microfinance as a whole, however, particularly microsavings accounts, does provide a very useful means for the poor to manage their money.

Intuitively these findings make sense. In Western countries, poor people who save money tend to improve their lot, whereas poor people who max out their credit cards tend to stay poor. Poor people tend to borrow money more often to meet today's needs than to invest in high-return business enterprises. Finding food for today is a more pressing concern than repaying a loan tomorrow.

The surprising thing about the findings is that they tend to contradict the virtually unanimous voice of microcredit proponents over many years. Presumably the microcredit myth has lasted so long because it appeals to our paternalistic instincts as donors, romantically portraying the poorest of the poor as skilled entrepreneurs just needing access to capital (when what they really need is opportunities for decent employment), portraying women as better managers of money than men (when in reality they are perhaps more susceptible to coercive demands for repayment), and suggesting that poverty can be solved through a simple commercial transaction (when much more complex structural change is required).

The author does not confine himself to investigating the effect of microfinance on financial poverty. He also considers the impact on freedom and industry building. He presents his observations in a measured and impartial but very engaging and readable manner. I highly recommend the book to anyone who is concerned about serving the poor effectively.

4 of 6 people found the following review helpful

5.0 out of 5 stars Praise for the book January 4, 2012

By David Roodman

Format:Paperback|Amazon Verified Purchase

Below are the endorsements the book has received. As the author, I didn't want to rate the book, but Amazon required me to.

Roodman has been the most consistent and articulate analyst of microcredit in recent years. I hope this book reaches a wide readership and brings lasting, universal improvements in financial services for low-income people. --Muhammad Yunus, founder, Grameen Bank, and winner, Nobel Peace Prize

At a time when the pendulum of public opinion on microfinance is swinging from exuberance to cynicism, Roodman's balanced, evidence-based assessment is a timely and seminal contribution. This is an essential read for practitioners, promoters, and critics of microfinance. --Sir Fazle Abed, founder and chair, BRAC

Due Diligence is the result of years of rigorous, fact-based analysis and deep thinking of the type microfinance sorely needs. Anyone interested in the future of financial inclusion should read Roodman's work. --Carlos Danel Cendoya, cofounder,Compartamos Banco

Due Diligence is the microfinance book that grown-ups have been waiting for, as complex and fascinating as its subject. Roodman brushes away the slogans and the oversimplified dogmas to uncover microfinance's long history and multifarious present. It's required reading for anybody who seeks to engage seriously with the questions of whether and how microfinance works. And best of all, it's a pleasure to read. --Felix Salmon, Reuters

Microfinance has more than its fair share of myths, both positive and negative. It's a field in desperate need of cool, rational, and evidence-based analysis, and David Roodman has proved that he is singularly capable of providing it. --Tim Harford, author of The Undercover Economist and Adapt

No other book on microfinance is at once so well-informed and so objective. Roodman has an insider's depth of understanding, while his position outside the field allows him to look with clear--and penetrating--eyes. --Elisabeth Rhyne, Managing Director, Center for Financial Inclusion

Roodman pulls off the feat of examining microfinance from many angles without losing focus. The result is the most thoughtful book about the industry yet published--and consequently one of the most thought-provoking. --Stuart Rutherford, author of The Poor and Their Money

This is a splendid book. It's original and very smart. It's an engaging read. Best of all, it displays a high order of intellectual honesty. None of this is any surprise to those of us who have followed Roodman's microfinance blog, which is the only one I never delete before reading. --Richard Rosenberg, CGAP

David Roodman does the kind of analysis the research world needs more of: bringing together quantitative studies, qualitative studies, and historical context into a rich, holistic, hype-free picture. It's not just the most thorough and balanced assessment of microfinance we've seen--it's a case study in how to do thorough and balanced assessment. --Holden Karnofsky and Elie Hassenfeld, founders, GiveWell

Roodman's book astonished me. It is well researched, very well written, and perceptive. It could aid the microfinance industry in a shift from helping poor people cope with poverty to helping them move out of poverty. --Deepa Narayan, Director of the World Bank's Voices of the Poorand Moving Out of Poverty series and former Senior Adviser on Poverty Reduction

Microcredit perhaps never deserved the uncritical kudos it received between 1997 and 2006. Nor does it deserve the vilification since. David Roodman's is an important voice in looking at the field without prejudice. He comes up with several insights which will be useful for re-jigging the field. --Vijay Mahajan, Chairman, BASIX and chair of executive committee, CGAP

Due Diligence is a balanced, respectful, diagnostic effort to make microfinance a more powerful tool for social progress. For microfinance activists Roodman has written a page turner. Obligatory reading if you want to call yourself a microfinance leader. --Jonathan Lewis, founder and chair, MicroCredit Enterprises

This incredibly thorough and supremely careful public examination of microfinance is already part of the canon in the field. I don't think anyone who hasn't read Due Diligence can legitimately claim a serious interest in microfinance. --Timothy Ogden, cofounder and editor-in-chief, Philanthropy Action

4.0 out of 5 stars One of the most comprehensive books on issues of microfinance December 24, 2012

By Oliver Schmidt

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David Roodman writes extremely well and that makes it an engaging read to start with. He is a very well trained academician who has taken more tie and effort than any other I know to understand what microfinance actually does (with the possible exception of Esther Duflo). He interacted with many users of microfinance and, supposedly more intensively, the providers - managers, investors, development agencies, etc. - and genuinely reflects their experiences and the kind of knowledge they have gathered. He blends and contrasts and syntesis it with the principles and insights of academic methods, particularly in the area of impact-assessment. The result is an outstandingly rich book that offers learning ground for academicians and practitioners equally. A truly due diligence, written to be read!