Microfinance Focus, January 4, 2011: Speaking on the Global Prosperity Wonkcast, David Roodman, author of the book, Due Diligence: An Impertinent Inquiry into Microfinance, today said that the greatest strength of microfinance is in development as industry building, as it has helped build competitive and innovative institutions that serve millions.

“We don’t just see microfinance turning all these small borrowers into heroes of creative destruction but the microfinance institutions themselves are quite impressive. They are competing, innovating, hiring thousands of people and are serving millions at the bottom of the pyramid”.

“I can’t think of many other successes in foreign aid where outsiders have come in and created such dynamic self-sustaining institutions,” he said.

On development as escape from poverty, microfinance does not perform well. David says that several randomized studies show that microfinance does not lift people out of poverty, but he cautions that we still need to watch for longer-term studies.

On development as freedom, David believes that microfinance’s track record depends on circumstances. He highlights that in some cases, women take pride in going to public meetings and conducting business in public, but in others, women have stolen the belongings of their peers to pay off their loans.

In his book, David also recommends investing less in microcredit for fear of bubbles, favoring the development of safer services such as savings, insurance, and money transfers, and—lastly—looking to new technologies to revolutionize financial services to the poor.

“One of the reasons for the bubbles is that the microfinance industry grew too fast in these countries”, he said.

David Roodman’s book will be launched on January 5th at Centre for Global Development.