Does Microcredit Work?
Microcredit has a reputation that attributes it with gains from reducing poverty to empowering women. Writing for Foreign Policy, David Roodman complicates this picture, arguing that many of these benefits may be over-stated or even non-existent:
What has made so many so sure of microcredit? The ideas are powerful: a blend of self-reliance and liberation that appeals across the political spectrum. Microfinance promoters told compelling stories of individual men and women whose successes embodied those ideas, and papers in prestigious journals gave convincing evidence that the loans, especially when they went to women, made them less poor.
But the old studies are now discredited. Newer, better ones have found that microloans rarely make an impact on bottom-line indicators of poverty, such as how much a household spends each month and whether its children are in school.
Recent randomized studies in India, Mongolia, Morocco, and the Philippines have found that access to microcredit does stimulate microbusiness start-ups — raising chickens, say, or sewing saris. But across the 12-18 months over which progress was tracked, the loans did not reduce poverty. So today the best estimate of the impact of microcredit on poverty is zero.