Development that Works
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    This blog highlights effective ideas in the fight against poverty and exclusion, and analyzes the impact of development projects in Latin America and the Caribbean.
  • Microfinance: big questions and small answers



    Although the effectiveness of microcredit as a development tool has been recently questioned, its use seems to still be out of the discussion.

    In 2009, more than 128 million of the world’s poorest families received some sort of microloan (State of the Microcredit Summit Campaign Report 2011).

    Supporters of microcredit argue that it alleviates poverty, creates self-employment, promotes gender equality, empowers women, and increases education.

    On the other hand, critics argue that microloans can hurt the poor by causing over indebtedness and is not effective at addressing the root causes of poverty.

    Not long time ago there were no randomized evaluations of the effect of microcredit, and the discussion relied mostly on qualitative studies, or comparison of borrowers and non-borrowers. Now there are some small answers to this big question.

    Last June, in the microcredit session of the “Mind the Gap” conference in Cuernavaca, the panelists presented more results on the effectiveness of microfinance. The evidence is a mixed bag, again.

    But what I found interesting was the simplicity and specificity of some of the programs: how simple (but useful) things can make a difference. Martin Valdivia, from GRADE in Peru, presented evidence that business training can lead microentrepreneurs to adopt some of the business practices recommended in the training, increasing savings and business sales.

    Not surprisingly no impact was observed in attitudes towards domestic violence, gender relations and poverty. The importance of being specific about the potential impact of the program seems more and more relevant when designing interventions.

    For now, the big questions about the impact of microfinance in consumption, poverty, education remain unclear. It might just be the case that we are looking for something that it is simply not there.

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