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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

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