Roy Mersland, researcher and Centre director at the Norwegian Centre for Microfinance research, said to the newspaper Fædrelandsvennen that Mohammed Yunus should have been given an award for innovative banking instead of the Nobel Peace Prize.

Roy Mersland still believes in microfinance as a tool for eradicating poverty. But his opinion is that many have had an unbalanced approach to the sector.

- At first, we had many years where those who believed in microcredit only presented the positive sides of microloans. The past year, the pendulum has swung. There are more critical research reports.

-And in the media, one is suddenly more interested in the negative effects. The truth is probably somewhere in between, and has been, all the time, he says.

NRK wonders what, in his opinion, has been the achievements in the microfinance research the past years.

- All research is founded on theories and hypothesis. One such theory behind microfinance is that of «financial intermediation», that it is important that money is in circulation. In other words, that local savings are made accessible for those who want to invest in, for instance, a house or in a new business.

- This theory is still strong in our research community, but there are others that have been more difficult to find proof for.

- Which ones?

- One of the theories has been that lack of capital has been one of the most important factors for the poor. If a lack of access to credit is stopping them from starting new businesses and projects, then small and quick loans could be a good answer to this challenge. With help from new research, we can now see that this theory needs to be developed further. Of course, capital is a required factor in developing new business, but capital is not enough in itself, Mersland says.

Credit check

Mersland acknowledges the challenges with interest rates in some projects are very high, and that poor families take multiple microloans. This can in some instances lead to a debt-spiral of microloans.

One possible answer to the problem is to have credit checks and a national register over microloans.

Mersland believes this may be a good idea.

Another suggestion which is being debated is a possible maximum interest rate on microloans. Mersland sees that high interest rates may contribute to institutions not doing enough to keep their costs low.

Yet, he is critical towards a strict maximum interest rate:

- If interest rates are cut so low that there is no margin left for the companies lending out money, we risk that they of out of business. That would be very unfortunate for the customers.

- When millions of poor families choose these loans, it is because they think this is the best alternative, amongst many. We should be careful, and not take away this option that they see as best in their own situation, he says.

Cash loans

- What new knowledge have we gained from research in this area that helps on the negative side-effects we know from some microfinance projects?

- Well, this is not new knowledge, but the theory on income smoothing has been strengthened the past years. The poor does not have a smooth low income. Even in Norway, a rich country, we do a lot to smooth the flow of income. We have “holiday-money” in the summer, and a month with half tax-levels before Christmas, and we have pensions when we get old.

- Imagine a poor farmer with all his income bound in the crops he can harvest twice every year. His income does not come evenly throughout the year. Small loans can smooth his income, and have a stabilizing effect on a family’s economy.

- Are you talking about cash loans now?

- In a Norwegian context, cash loans have a negative sound. But in the contexts we are taling about here, small loans to smooth a family’s consumption may have a positive effect. We should also not forget the other tools within the microfinance sector. Microcredits are not the only tools. I believe, in the future, we will se more focus on insurance and savings, other financial tools that have allready proven well on a micro level.

The Norwegian Centre for Microfinance Research