Microfinance - Evidence For Reducing Poverty

Evidence For Reducing Poverty

Research on the effectiveness of microfinance as a tool for economic development shows mixed results, in part because measuring its impact is difficult. In 2008 economist Jonathan Morduch of New York University noted there are only one or two methodologically sound studies of microfinance's impact. Two studies published by the Grameen Foundation summarize scores of studies indicating positive impact, as well as some findings that suggest a limited positive or a negative impact.

Pulitzer prize winner Nicholas Donabet Kristof quotes two studies by Abhijit Vinayak Banerjee and Esther Duflo of M.I.T, and Dean Karlan of Yale, covering individual loans by First Macro Bank in the Philippines and group loans by Spandana in India. In the Philippines, male-owned businesses increased profits, although female-owned businesses did not. In India, loans were used to expand existing businesses and to buy durable goods. However, "there is no evidence that microcredit has any effect on health, education, or women’s empowerment, at least right now, eighteen months after they got the loans."

Sociologist Jonathan H. Westover says that much of the evidence on the effectiveness of microfinance for alleviating poverty is based in anecdotal reports or case studies. He analyzed over 100 articles on the subject, but included only the 6 which used enough quantitative data to be representative, and none of which employed rigorous methods such as randomized control trials similar to those reported by Innovations for Poverty Action and the M.I.T. Jameel Poverty Action Lab. One of these studies found that microfinance reduced poverty. Two others were unable to conclude that microfinance reduced poverty, although they attributed some positive effects to the program. Other studies concluded similarly, with surveys finding that a majority of participants feel better about finances with some feeling worse.