Viewpoint: 3 Reasons the Impact of Microcredit May Be Bigger Than We Thought

Tuesday, May 7, 2019

By Bruce Wydick

Beginning about four years ago, microcredit as an effective poverty intervention seemed dead, or at least on life support.  Along with a couple of earlier studies, the six famous randomized controlled trials (RCTs) that appeared in the January 2015 issue of the American Economic Journal: Applied Economics appeared to show that the hype surrounding microfinance in the 1990s and early 2000s was exactly that–or at least this is how many readers of these studies interpreted them.  Effects on household income and consumption fell short of statistical significance in any of the studies. There was little evidence of female empowerment. Microloans did foster entrepreneurialism, but at the cost of other sources of income.

However, subsequent research has hinted that rumors of microcredit’s demise as a poverty intervention do appear to be exaggerated, perhaps substantially, and I want to present three reasons why the impact of microcredit around the world, while modest on average, is almost certainly bigger than we thought it was a few years ago.  I will mention the first two only briefly, because they have been the subject of a past blog post, and spend a little more time on the third, which presents newer evidence.

Photo courtesy of Mags’ pics for everyone.

Source: Across Two Worlds (link opens in a new window)

financial inclusion, microfinance, poverty alleviation