Making Microcredit Charities Better
Tuesday, June 20, 2017
It is an irresistible notion: Support the developing world’s women entrepreneurs. “These women not only grow gross domestic product, but have a huge impact on their communities,” gushed Dina Powell in a radio interview—she was then director of Goldman Sachs ’ impact-investing initiatives, and is now a Trump administration senior advisor. “They take 90% of their income, as women do, and reinvest it in their communities.”
While supporting women entrepreneurs is commendable, no data suggest that lending to women—or men, for that matter—is a miracle poverty cure. That’s primarily because lenders commonly charge the poor about 25% for loans. Six randomized studies of microlending programs from 2003 to 2012, published in the American Economic Journal, found no correlation with improved welfare. Although the loans can be helpful in some situations, there’s no evidence of a transformational effect.