NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, March 19, 2015

Some of the world’s top experts in microlending recently gathered to debate a hot topic: Has the microloan boom of the last decade actually helped global efforts to lift people out of poverty?

The event was prompted by the latest issue of the prestigious American Economic Journal: Applied Economics, which published a group of independent studies suggesting that microlending—tiny loans to poor entrepreneurs—usually fails to raise incomes.

While the broader debate has raged for years, the report—which combined randomized control trials in six countries backed by scholars at prestigious international universities—prompted a new round of soul-searching in the sector.

“This is kind of a defining moment,” Abhijit Banerjee, an economics professor at the Massachusetts Institute of Technology who co-wrote one of the studies, said during the debate, at a World Bank conference in February. “The big question that we would like to answer is what is the right product [for the poor] to have? What is missing?”

Many disagree with the studies’ conclusions, saying the industry has helped lift millions from poverty.

Vikram Akula, the founder of one of India’s largest microlenders, SKS Microfinance Ltd., said he has witnessed the benefits of microlending in villages across India. But Mr. Akula, who left SKS in 2011, said that newly critical scholarly studies are changing the way donors look at projects and how lenders measure success.