Microfinance Mishap: A Letter to a New York Times Columnist

Written by on December 27, 2009 in Featured, Microfinance, Photos, Resources, Videos - 14 Comments

On my way home from New York City on Saturday evening, I picked up the business section of the New York Times and began reading a column- the headline of which peaked my interest. “You, Too, Can Be a Microlender” by Ron Lieber.  I’ve spent a fair amount of time studying the microfinance “niche” as Lieber calls it. And I was thrilled that the Times would pay some attention to the subject. Unfortunately for this reader, however, I discovered that Mr. Lieber mis-wrote the headline…and most of the article. What was positioned as an piece about this increasing-in-popularity economic development tool ended up to be a fairly interesting article mainly discussing peer-to-peer online philanthropy.

In the spirit of the blogger that Lieber mentions in his column,  I would like to take this opportunity to point out three major mistakes that he makes. My hope is to simply benefit the greater public and emphasize the importance of clear definition of terms and effective reporting.


Defining Microfinance and Peer-to-Peer Lending Sites


microfinance_z

Photograph from Allianz.com

First, for the person who has never heard of microfinance, based on Lieber’s article, will understand it to work like this: “You take a relatively small amount of money and, through an online marketplace of sorts, give or lend it to a specific person or project whose story moves you.” In the onlne version, Lieber links to a Times definition of microfinance, but one does not have this luxury in the print version. What Lieber actually defines here is the  peer-to-peer lending online tool that facilitates microfinance around the world.

So, to put it briefly, CGAP defines microfinance in the following way: “Microfinance offers poor people access to basic financial services such as loans, savings, money transfer services and microinsurance. People living in poverty, like everyone else, need a diverse range of financial services to run their businesses, build assets, smooth consumption, and manage risks.”

Most, if not all peer-to-peer sites associated with microfinance are focused primarily on microcredit or microloans. Donors or investors are able to give capital towards microloans or microfinance institutions around the world. Some repay, some don’t. So Mr. Lieber’s definition of peer-to-peer lending sites could be considered fairly close, but it does not paint the complete picture.

I hope that defining these terms helps to clear up some confusion. For more, please see the above video.


What is the Microfinance Niche?


Lieber’s second mistake comes in the very next paragraph. In defining this niche (which I am assuming is the “microfinancing” niche), he mentions Kiva and Microplace-both arguably appropriate. But then he includes DonorsChoose- an organization that links donors with school projects. Check it out. No where in the “How it works” section does it claim to be a microfinance service provider! In fact, I would be interested to hear what their staff would have to say about the linkage. Yes, you receive letters from the students at the schools you support-which is awesome, by the way- but this is not the same as banking for those in need.

In defining the “microfinance niche”,  Lieber does not reference any of the thousands of microfinance organizations that provide the actual services around the world. This normally would be a substantial mistake, but Lieber’s confusion of terms provides justification for the absence of such pertinent information. And this leads me to the third mistake- the most grave, if not corrected.


The Media’s Responsibility to Report the Truth


In both the print and online version, Mr. Keith Taylor and the Modest Needs Foundation are featured as the main organization for the article.  Taylor, founder of Modest Needs,  is pictured on the website, on the front page of the Business section as well as the second page of the article. But guess what? This organization is a grant-making organization- not a microfinance institution. Much like DonorsChoose, Modest Needs receives donations and issues grants-not loans. This creates an illusion, yet again, that philanthropy at a peer-to-peer or online level is the same as microfinance.

This false connection actually does a disservice to both the organizations profiled and organizations that actually reside in the microfinance space.  This kind of carelessness in writing contributes to a relaxed (and wrong!) approach to the non-profit sector. We would be hard pressed to find an article on online banking that actually only discusses generic online customer service. As time goes on, community development non-profits are held to a pretty significant (and increasing) standard of transparency and ethics. Seeing as these non-profits, like Modest Needs, are trying to help those who need it, I would think that it would be in our best interest as the media to support this standard in the way that we report.


Dear Mr. Lieber


Mr. Lieber, you’ve written some pretty solid articles on both social and financial issues. These have been well researched and crafted. But, unfortunately, you missed the target here in a very significant way. You mis-defined microfinance, the niche it represents, and incorrectly linked two pretty awesome organizations to a field in which they do not belong. Because of this, I would humbly request a retraction or at minimum, a follow up column on the subject, correcting the discussed mistakes.

By all means, write a profile of peer-to-peer/project websites. Tell us about the ways that individuals can become philanthropists out of the comfort of their own home. The world needs to know these things. But,  from one journalist to another, if you’re going to attempt to discuss ways in which individuals can engage with organizations related to a specific service or industry,  please be sure to do your research.

Amy

Amy comes from a background of strategic cause marketing, fundraising, event planning, public relations, service provision and program development. With an MPA in Non-Profit Management from Indiana University, she has worked for a variety of humanitarian development organizations and companies including Opportunity International, TOMS, Disaster Psychiatry Outreach, among others. She has successfully led fundraising and marketing initiatives that deploy integrated media, engage and grow special interest group involvement, and support major and planned giving programs. Currently, she works at as an Account Supervisor for a non-profit marketing and fundraising agency.

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  • http://homerunevents.blogspot.com Bobbie_Stacey

    Nice call, Amy. I've recently researched many of the same distinctions in an effort to find out if it would be possible to “lend” money to youth doing social service projects. In my experience most people throw out the idea of microfinance with little or no understanding. They seem to think that any small amount of money changing hands qualifies as a microfinance transaction.

  • Amy

    Thank you! It's an unfortunate misunderstanding that puts even more weight on those in charge of marketing microfinance organizations. Not only do they have to define but they have to correct.

  • http://npoingenuity.blogspot.com/ Heidi Massey

    Amy,
    As usual, you hit it out of the ball park with this piece. Makes Microfinance understandable for folks like me, with limited exposure/experience with it. I now have a much better understanding of the difference between microfinance, micro loans and micro credit. Thank you. Hoping that Mr. Lieber sees your piece and responds appropriately.

  • http://twitter.com/zyOzyfounder Steve Jennings

    Amy, well written. Microfinance has quickly become the latest 'on trend' buzz word. I think its 'high time' to shift the narrative to 'economic empowerment and financial services solutions'. Its what our friends at http://www.opportunity.org are doing incredibly well 'day in and day out'. “Nose to the grindstone, getting the work done, empowering and serving people with immense dignity and humility.” Steve

  • Amy

    Glad it helps, Heidi! I hope that Mr. Lieber responds as well.

  • Amy

    Thank you Steve!

  • droodman

    Hi Amy. I enjoyed reading this—passionate intellectual engagement with another author. But personally I wouldn't be so hard on Ron Leiber. For one, he didn't write the headline. In fact the headline for the web version you link to is quite different (although I don't actually understand it….) and doesn't make the article seem like it's just about microfinance. On that point, I happen to have written the perfect post: Making Headlines. Second I think the context of this sentence—“You take a relatively small amount of money and, through an online marketplace of sorts, give or lend it to a specific person or project whose story moves you.”—is explaining “the fastest-growing way to act on these altruistic instincts is participating in microfinancing” (previous sentence). It is certainly plausible that the fastest-growing way to do P2P charity is through P2P microfinance sites, and they are indeed all about *microcredit*.

    Personally, I liked this story because he took my critique as a starting point, and then asked and helped answer a concrete, constructive question: If I want to help people through P2P, what should I do?
    Best,
    David

  • Amy

    David,

    Thanks for the taking the time to respond. I do understand that the headline was not written by Mr. Lieber…perhaps my headline should include the editor. However, if you go to the page you will notice that the title of the page (up on the top of the web browser and the hyperlink does still include the microlender headline. In addition, even if the headline was changed, the print version still remains the same.

    My concern here is less about being hard on Ron Lieber and more about making sure that when we as journalists write on an industry- we do it well. The featured organization in the “niche”, as I mention, was not a microfinance organization and could serve as a means for confusion.

    Bottom line: it's important that we define terms correctly. I welcome an article about P2P interaction, as I mentioned. But that was not how this was positioned.

    A side note re: the P2P lending sites…Yes, they are all about microcredit at this juncture, but as is the nature of this social entrepreneurship world, I wouldn't be surprised if that stays the same for long.

    Thanks again for taking the time to respond! Enjoy the day.

    Amy

  • http://www.nosnivelling.com daveschappell

    Amy, that was incredibly well-written. I'm surprised other commenters are recommending that you give the writer a pass — I think you're presentation shows that he made a number of significant factual errors. Any response from him, or the New York Times?

  • Amy

    Thank you for your comment, Dave. Unfortunately, Mr. Leiber did not respond, nor did the Times. However, I'm aware that he did see it and was challenged by a personal friend to consider writing a response. Feel free to turn up the heat a bit, if you'd like. I'd love to see him at least recognize the mishap.

    Thanks again!

    Amy

  • http://www.nosnivelling.com daveschappell

    Amy, that was incredibly well-written. I'm surprised other commenters are recommending that you give the writer a pass — I think you're presentation shows that he made a number of significant factual errors. Any response from him, or the New York Times?

  • Amy

    Thank you for your comment, Dave. Unfortunately, Mr. Leiber did not respond, nor did the Times. However, I'm aware that he did see it and was challenged by a personal friend to consider writing a response. Feel free to turn up the heat a bit, if you'd like. I'd love to see him at least recognize the mishap.

    Thanks again!

    Amy

  • http://www.cgonline.com/member/15319 Deshawn Monaham

    thanks for the great info! many of today blogs are just non sense…

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