A couple of years ago, I was chatting with a college friend who, like me, is passionate about entrepreneurship, tech, and combating social injustice. “Microfinance is the key,” he said. “You help women, you end poverty.”

I think most of us have moved past that fantasy. Microfinance isn’t a magic salve. But it’s at least helping more than hurting.

Right?

Estee Ward’s article on theguardian.com “Microfinance in Jordan isn’t helping to empower women,” is an excellent reminder that reality quite often refutes theory (even benevolent theory). The government of Jordan, along with aid agencies and foreign governments, have excitedly invested in micro and small enterprise development – to the tune of USD $250 million – in the last two years. Unfortunately, according to Ward, more money is being ciphered into the purses of the microfinance agencies themselves than into the pockets of the women it’s intended to help. The problems are myriad.

1. Lack of regulation (no laws for microfinance exist in Jordan).
2. Donor assessment (a consistent aid issue, increasingly so since the buzz of big data) tends to focus on profit margin rather than social impact.
3. Loans are given out, but little investment is made on financial literacy or development of other necessary business skills.
4. Local leaders who actually understand the issues and often the solutions are typically left out of conversations or undermined by “assistance.”

In their book Poor Economics, Abhijit Banerjee and Esther Duflo challenge the notion that women in poverty – or most “poor people” in general – are any more entrepreneurial than any other segment of the population. I’ve seen firsthand how true that is after living for a year in the Philippines. People do what they need to do to survive; if you can’t find someone to employ you, your only alternative is to figure out something to sell.

On Olango Island, Cebu, Philippines, nearly all men are fisherman or boatmen. A few of the women work in a “shell business,” where they hand make crafts from shells: 30 a day, each sold to a middleman for 65 PHP (about USD $1.50), and make 5 PHP on each one.

At a gathering for the local women, I asked a few of them what they think would be the biggest benefit to their life. Each woman readily replied, “If I could only get enough capital to start a shell business. Then I could help support my family. That would be the biggest benefit.”

Anyone with a modest grasp of economics would immediately realize that if all the women on Olango had a shell business, the market would be flooded with supply and the shell craft would be worth nothing. If I were to provide these women a loan, with no other educational investment or business guidance, it wouldn’t help any of them, and it would in fact hurt all of them.

This might seem like an overly simplistic case, but it’s a lot more realistic an outcome than you might think when microfinance is flaunted as the perfectly simplistic solution.

Of course, it’s easy to talk trash from the sidelines, and complaints without solutions aren’t helping anyone, either. So what do we do?

1. Monitor and evaluate your programs, and make sure your metrics actually parallel your intentions.
2. Aid has always had its problems. Micro-lending, startup funding, etc. might be steps in the right direction, but without education, monitoring, mentorship, support, and evaluation, they can fail just as readily.
3. You know things, but locals know things, too. Find the ones that know things and listen.