Bulletein of Indonesian Economic Studies, Review of : Bouman, F.B.A. and Hospes, Otto, "Financial Landscapes Reconstructed:The Fine Art of Mapping Development", Westview Press, Colorado, 1994.

The title of this collection of 22 articles provides ample licence to address the range of subjects covered. Further organic metaphors of "cultivating and "looking" at financial landscapes are used to divide the book into two sections. The first looks for an answer to the question why do banks "flourish or wither". The second comprises more case study type research on the contemporary and historical experience of informal finance in Indonesia, India, Sri Lanka, Thailand, the Philippines and West Africa. Many lessons from informal finance are examined in an earlier Westview volume, "Informal Finance in Low Income Countries" edited by Dale Addams and Delbert Fitchett(1992). Six authors contributed to both volumes.

Some of the articles in this first section, on what works and what does not, deserve to be included in the reading lists for microfinance courses, while others merely recycle the new conventional wisdom of micro-enterprise finance. JD Von Pischke's 'Structuring Credit to Manage Real Risks' eloquently summarizes the fundamental principles of finance and explains how they should also apply to micro-finance . Ross McCleod's, 'The Evolution of Finance Policy in Indonesia' presents a concise critique of traditional supply-led finance. However, I disagree with his contention that the BIMAS Program was disastrous. Its recovery performance (about 70% by the early 80's) looks pretty good when compared to other donor and government sponsored subsidized credit programs in the rest of the world. Both of F.J.A. Bouman's pieces are well written eulogies to the sophistication of the informal finance sector. Those who feel uneasy about the uncritical way that NGOs have embraced micro-enterprise credit as the "silver bullet" solution for development, will appreciate Charles Abugre's trenchant critique which was originally published in the Journal of Small Enterprise Development ('When Credit is not Due'). Franz Heidhues, in his article on 'Consumption Credit in Rural Financial Markets', offers both theoretical justification and empirical support for a broader targeting of credit supported activities . McCleod and Heidhues both make the point that the foundation of policies which not only try to target the poorest of the poor (whatever the cost), but also dictate what the poor should use their loans for, are flawed by neglect of the fungibility of money, arbitrary definitions of consumption and investment, and a linear relationship between investment and welfare. The 'microenterprise credit fever' gripping the development community neglects consumer loans (which often support activities such as education, housing improvement and the seeking of medical attention to stay alive.) Heidhues' Cameroon study challenges the stereotype of the profligate consumption borrower and finds no significant differences in the recovery of consumption and investment loans, by formal and informal institutions. Credit programs are successful if loans are repaid and borrowers come back for repeat loans. Success should not be measured by borrowers' adherence to donor and government covenants to prevent "loan abuse" (which means using the money to finance untargeted incremental activity).

Rob Varley

Research Triangle Institute, NC, 3 March 1995