James Militzer

‘This isn’t what we had once hoped it would be … so what should we do?’: Dean Karlan discusses the influential new studies on microcredit’s social impact

As the six recent randomized evaluations on microcredit continue to reverberate in the global development sector and beyond, discussion has tended to follow two general tracks. Within the sector, conversation has focused strongly on the future: how the studies – which found modestly positive but not transformative social impact – can be used to improve the impact of both credit and other microfinance products. But outside the sector, discussion has been more strongly informed by the past: how microcredit hasn’t lived up to the hype, and whether it should retain its prominent spot on the global development agenda.

Both of those currents came to the fore in our Q&A with Dean Karlan, President and Founder of Innovations for Poverty Action (IPA – a NextBillion content partner). A mainstay in the world of poverty research. Karlan co-wrote one of the six studies, and IPA has been actively involved in disseminating their results. The interview was conducted at the Feb. 27 World Bank Forum on the research.

In discussing the studies’ already considerable impact on the sector, Karlan, Professor of Economics at Yale University and author of the influential book “More Than Good Intentions” spoke not only of the similarity of their results, but of what he termed their “huge, exciting innovation … in the publication process”: the fact that although the studies were conducted independently, they were published as a group.

“It is always a problem in social science in general, that when you see one study in one place or one point in time, you always want to know how pervasive these results will be in multiple contexts,” he explained. “But that type of replication is not rewarded in academia, unfortunately.” He expressed the hope that the joint publication and parallel structuring of the studies will help inform future research and innovation in the sector.

Of course, it’s not surprising that the simultaneous release of six studies showing underwhelming social impact has also renewed the perennial debate about microfinance’s role in poverty alleviation. But Karlan says the researchers weren’t focused on making a statement. “Every one of these studies was trying to get published by saying how they were so magically different from the other five, but of course that’s just not the case. And that’s when we had this realization that we really should put them together, that the strength is in the commonality across the six, and that that needs to be highlighted rather than downplayed.”

Though the sector has fallen short of its initial transformative goals, Karlan had a positive take on its value and impact. “The investors should be happy to be investing, and feel good about the positive impact,” he said. “The donors who started it years ago should be quite proud of having created the industry, and having all these investors now following. But it also should open up the door to innovators, saying ‘Wait a second, this isn’t what we had once hoped it would be, in terms of alleviating poverty. So we get that it’s still doing good, but it’s not doing everything we had hoped. So what should we do?’”

That question was a prominent focus of much of the interview. Karlan discussed the need for more flexibility in lending product design, the demand for products that go beyond credit, and his perspective on what the sector will look like in 10 years. He also parried the much-discussed question from a rogue audience member at the World Bank event: whether this research signals the “death of microcredit.” And he had some thought-provoking views on whether, in light of these and similar studies on how clients actually use microcredit, the sector should continue focusing on the “canonical story of enterprise” that has often defined it in the public imagination. You can view the conversation, part three in our series on The Future of Microfinance, below.

Education, Impact Assessment
microfinance, poverty alleviation, research