114 Book reviews

the authors’ conclusions about the wisdom of most in-vestment policies designed to protect biological assets.True, many policy practitioners would be frustratedwith the narrow cost-benefit analysis perspective pre-sented. Yet, I can see myself pulling this book fromthe shelf to clarify the distinction between the precau-tionary principle and the safe minimum standard, toadvance the argument as to why willingness to paymay diverge so much from willingness to accept, orto find succinct discussions of non-market valuationtechniques. I am also hoping that the next edition willcorrect some of the problems, so that all intended pur-poses are met and I can encourage my colleagues toadopt this book as their text without reservation.

Sandra S. BatieDepartment of Agricultural Economics

Michigan State University, East Lansing, MI, USATel.: +1-517-355-4705

E-mail address: batie@msu.edu (S.S. Batie)

PII: S 0 1 6 9 - 5 1 5 0 ( 0 2 ) 0 0 0 4 3 - 9

The Microfinance Revolution: Sustainable Financefor the PoorMarguerite S. Robinson, International Bank forReconstruction and Development/The World Bank,Washington, DC, 2001, US$ 35, Paperback, ISBN0-8213-4524-9

The microfinance revolution of the 1990s sparkeda major debate between the poverty oriented lend-ing and the financial systems approach for providingfinancial services to the poor. The first focuses onreducing poverty largely through credit provided byinstitutions funded by donor and government sub-sidies and other concessional funds. The primarygoal is to reach the poorest of the poor, but mobil-ising voluntary savings is normally not an importantobjective. In contrast, the second approach focuseson commercial financial intermediation among poorborrowers and savers, and emphasises institutionalself-sufficiency. The author has written an excellent re-view of this debate and draws heavily on her extensivefield experience, especially in Indonesia, to presentwell-reasoned arguments in support of the secondapproach.

The author defines the microfinance revolution asthe large scale profitable provision of microfinanceservices—small savings and loans—to economicallyactive poor people by sustainable financial institutions.The Grameen Bank in Bangladesh is identified as thefirst large scale specialised bank for the poor, but theauthor believes that its subsidised approach is inferiorto the commercial orientation pursued by the unit desasystem of Bank Rakat Indonesia (BRI) and BancoSolin Bolivia. They not only serve a large number ofclients, but also cover their costs and risks and earnprofits for the institutions.

The book is subdivided into two main parts. Thefirst summarises the shift from the old subsidisedagricultural credit paradigm to the new paradigm ofsustainable commercial finance. It includes a chapterwith rich insights about how poor people use andvalue financial services. In the second part, the au-thor presents a critique of four sets of literature: thesupply-leading rationale for directed credit, the imper-fect information paradigm, informal moneylenders,and the role of savings in microfinance. Her critiqueof this literature provides the underpinnings for herviews about commercial microfinance. She arguesthat there is scope for large-scale and profitable mi-crofinance because commercial moneylenders oftenextract monopoly profits from their borrowers andmicrofinance institutions (MFIs) are more capable ofsorting clients and enforcing contracts than predictedby the adverse selection and moral hazard argumentsof the asymmetric information paradigm.

One of her widely recognised contributions to mi-crofinance is her understanding of the value of savingsfor the poor that derives from extensive field workin Indonesia and other developing countries. Thisexperience is evident in the last chapter in which shedescribes the many forms of informal saving mecha-nisms used by poor people and explains how microfi-nance institutions can design and price instruments tocapture these savings. These arguments represent hermost important and unique contribution to the micro-finance debate and are crucial for her view that unsub-sidised financial intermediation is possible for MFIsthat serve the poor. The 10:1 relationship betweenthe number of savers and borrowers in the BRI unitdesas and the surplus of funds transferred from ruralto urban areas in Indonesia is the key empirical datain support of this view. This observation also leads to

Book reviews 115

her view that most MFIs put too much emphasis onlending and overlook the fact that attractive savingservices are also useful and important for the poor.

This book is the first of three that she is writing onthese general themes. The second one promises to ex-plain why the microfinance revolution emerged on alarge scale in Indonesia, the way it occurred, and thelessons for other countries. It will focus heavily onBRI up to the financial crisis in 1997, with an updatethrough year 2000. The third volume will analyse thehistory and performance of institutions that played keyroles in the microfinance revolution—village banks,credit unions, NGOs, banks, regulatory institutions,donors, etc.—and the emergence of best practicesfor the new paradigm. It will also present a forward-looking view of the industry as it will appear in 2025.

Thus, it is possible that the best is yet to come, asshe fills in the significant gaps in the Indonesia storythat remains unexplained at the end of this volume.More information is needed in order to fully evaluatethe idea that the unit desa system is the model for theentire microfinance industry. Two important featuresof the system make it unique. First, the transformationof BRI from loss-making agricultural lending to prof-itable microfinance is a rare example of the successfulturnaround of a government-owned financial institu-tion in developing countries. Part of the BRI successcan be attributed to the huge investments in financialinfrastructure made by the government and donorsover many years. Second as a government-ownedinstitution, it has enjoyed a near monopoly in somelocal markets so it mobilises savings from all typesof savers for use in financing loans to poor borrow-ers. Large amounts of surplus funds are transferred toits urban operations and lent to corporate borrowers.By being government-owned, it benefited from theperception by savers that their savings were insured.Therefore, its savings volume increased relative toother banks due to the flight to safety that occurredduring the 1997–1998 financial crisis. By compari-son, many MFIs in developing countries are perceivedas being too new, weak and unstable to trust withsavings, and most are not regulated by financial au-thorities. An argument can be made that in these moretypical circumstances, a preferred financial strategywould be to encourage commercial banks to use theirnetworks to mobilise savings and lend them to othertypes of MFIs that specialise in lending to the poor.

This book delivers a powerful message to policymakers to re-evaluate their bias towards lending andstart thinking about the importance of savings servicesfor the poor even if the Indonesian model has lim-ited applicability in their countries. It is an importantaddition to the microfinance literature for students indevelopment and finance courses who want a goodsummary volume to place the abundant literatureabout the Grameen Bank in a broader perspective.It has an excellent and large list of references thatincludes most of the key literature in the field.

Richard L. MeyerDepartment of AED Economics

The Ohio State University, ColumbusOH 43210, USA

E-mail address: meyer.19@osu.edu (R.L. Meyer)

doi: 10.1016/S0169-5150(03)00023-9

Contracting for Agricultural Extension: Interna-tional Case Studies and Emerging PracticesW.M. Rivera, W. Zijp (Eds.), CABI Publishing, NewYork, 2002, US$ 65, 188 pp., ISBN: 0-8199-571-3

Contracting for agricultural extension provides anew and important contribution to the world-wide dis-cussion about the design and functioning of agricul-tural extension service approaches. The editors presenta selected sample of case studies, from all over theworld, which show a variety of contractual extensionarrangements that may help secure sustainable fundingfor efficient extension service delivery. After a shortintroduction and a first chapter reviewing the resultsof the international debate on organising and financingagricultural extension, the 18 case studies are arrangedin six sections, followed by a concluding chapter thatprovides an overall analysis of the cases.

The first section, with the heading “Offloadingpublic sector extension delivery services,” describesexamples from Chile, Germany, Estonia and TheNetherlands. The unifying theme of these cases ishow former public (state- or country-wide) extensionsystems have partially or totally shifted extensiondelivery to private or privatised suppliers. Thesedelivering organisations are still funded for parts oftheir services by the public treasury. But their de-velopment clearly has been in the direction of full