Microlending Fails

The Boston Globe published an article in September, subtitled, “Billions of dollars and a Nobel Prize later, it looks like ‘microlending’ doesn’t actually do much to fight poverty.” …

Three important randomised controlled trials were unveiled this year. In one, economists … persuaded a lender in Manila to tweak a credit-scoring computer program so that it randomly awarded or denied loans to marginal borrowers. … Male-owned businesses tended to become more profitable after a loan, and female-owned businesses did not. … The loans produced no improvement in diet or income about 18 months down the line.

[In] a second trial … a leading microfinance operator agreed to randomise … The company chose 104 suitable areas of the city but at first only marketed loans in 52 of them. … Households seemed to use the loans to buy more expensive goods and then cut back on everyday spending to repay the loan, but income did not rise, nor were there improvements in health or women’s empowerment. Business owners did manage to improve profits. The time horizon, again, was less than two years.

A third [non-randomized] trial, of a micro-savings scheme in rural Kenya … found that the savings accounts were popular among women and helped them save, invest in businesses, spend more and cope with bad luck. All this was despite the fact that the accounts paid no interest and charged hefty withdrawal fees. …

The reason for the backlash is obvious: microfinance was supposed … to emancipate women, create millions of entrepreneurs and get rid of stubborn stains on your collar. … “Suppose microfinance is not having much average impact on poverty, but is giving millions of people a modicum of greater control over their lives … is that so bad?”

More from Tim Harford.  Gee, another anti-poverty silver bullet turns to rubber.  Guess we’ll need another decade or two to build up another great white hope, before it too disappoints.  Yet we’ve known for many decades how to help the world’s poor while actually benefiting us in the process: allow more immigration.  Yes even immigration has limits, but that’s no excuse for why we haven’t done all we can.