Understanding the average effect of microcredit
By Rachel Merger
The idea that giving small loans to poor households would help them escape poverty was once considered so compelling that it won Mohammed Yunus the Nobel Peace Prize. The global microloan portfolio is now worth over $102 billion and is growing yearly (Microfinance Barometer 2017). Yet microcredit now enjoys so little support among academics and policymakers that the Washington Post recently felt the need to assure us that “microcredit isn’t dead”. One factor in that dwindling support has been the results of academic studies: seven different randomised controlled trials (RCTs) had found little evidence that increasing access to microcredit caused any major change in household business profits, income, or consumption (Angelucci et al. 2015, Attanasio et al. 2015, Augsburg et al. 2015, Banerjee et al. 2015b, Crepon et al. 2015, Karlan and Zinman 2011, Tarozzi et al. 2015).
But, despite widespread agreement that RCTs are a rigorous method for estimating these effects, the research and policy community disagreed on how to interpret these results.
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