Does Microcredit Really Help the Poor? Take II
I appreciate the vigorous discussion on microcredit impact. A few responses:
–(for Michael) When people think about “getting out of poverty,” they are usually thinking in terms of income and/or consumption. Most impact studies focus on these variables rather than wealth, so I’m not aware of evidence bearing one way or the other on your interesting suggestion that housing microfinance may be more helpful.
–(for Elie Hassenfeld) The statements about loan demand and desertion rates were based on my and my colleagues’ anecdotal experience. I know of no source for broad data on these topics. Many individual MFIs keep such data, but I have no idea which ones might be willing to share it.
–(for V. Rengarajan) The question of how far down the poverty scale microfinance reaches is an important but difficult one. The Microcredit Summit publishes data about millions of “poorest” clients–that is, people in the bottom half of the group below the poverty line, or living on less than $1 a day. I have been told (I can’t vouch for it myself) that with the exception of Fonkoze in Haiti, most of the MFIs that are studied using the Grameen/CGAP or IRIS/USAID poverty scoring tools turn out to have far fewer extremely poor clients than their management has thought. Let’s not assume that reaching such clients is always and necessarily beneficial. It’s far from obvious that indebting people who aren’t likely to have the regular cashflow to make payments on the loan is a good thing for them.
–(for Sophie Chitedze) Randomized controlled trials aren’t the only way to know about microfinance helping poor people. The private knowledge of experienced people like you is also an important source of knowledge. The problem is in the public forum: it’s a lot easier for a third party (like me, for instance) to assess the reliability of an RCT than it is to assess the reliability of often-conflicting reports of personal experience.
–(For FCRWizard)So far I’ve heard of only one RCT study of microfinance plus, and my recollection is that the people who got the “plus” did better than the people who just got the loan. I hope that there are many more studies of this question using rigorous methodology.
–(for Anita Sharma) I certainly agree with you that we need to look more broadly than just income changes. On another point, I think that your overall feel about the findings of the Banerjee study may be a bit more optimistic in tone that the authors’overall conclusions were.
For those who are interested, the topic of this blog is treated in more detail in CGAP’s Focus Note No. 59: ‘Does Microcredit Really Help Poor People?’
Comments
As a followup on Elie’s
As a followup on Elie’s comment and your response: we have collected information on dropout rates from MixMarket, as well as some limited information on the reasons for dropping out.
Best,
Holden Karnofsky
Thanks Rich for your response
Thanks Rich for your response. I quite agree that reaching such clients (the poorest) with ‘micro credit’ alone may not be necessarily beneficial. However in the process of inclusion of such clients in particular under Micro finance umbrella, sequencing the MF services such micro saving, micro insurance coupled with capacity building etc., depending on the priority needs of the demand side is a ‘sine quo non’. as this would facilitate their graduated elevation in the poverty pyramid. That is to emphasize ‘putting the last (micro credit) first’ to these clients for the purpose of outreach is suicidal. Provision of a package of MF services as referred to above could be made severally by other development partners jointly with MFI s. if latter alone find difficult. In India both central and state governments provide free premium micro insurance for ‘health’ to the poor.The focus is therefore on integrated and graduated approach for out reach of needed MF services to the poorest irrespective of type of supplying agencies so long ultimate goal-sustainable poverty reduction is common to all
Thanks Rich for your response
Thanks Rich for your response. I quite agree that reaching such clients (the poorest) with ‘micro credit’ alone may not be necessarily beneficial. However in the process of inclusion of such clients in particular under Micro finance umbrella, sequencing the MF services such micro saving, micro insurance coupled with capacity building etc., depending on the priority needs of the demand side is a ‘sine quo non’. as this would facilitate their graduated elevation in the poverty pyramid. That is to emphasize ‘putting the last (micro credit) first’ to these clients for the purpose of outreach is suicidal. Provision of a package of MF services as referred to above could be made severally by other development partners jointly with MFI s. if latter alone find difficult. In India both central and state governments provide free premium micro insurance for ‘health’ to the poor.The focus is therefore on integrated and graduated approach for out reach of needed MF services to the poorest irrespective of type of supplying agencies so long ultimate goal-sustainable poverty reduction is common to all
Numerous studies using a
Numerous studies using a variety of econometric models / tools have found out that micro-credit does help the poor and it does not help the poorest. Though the initial efforts were to assist the poorest, somewhere midway, the policy makers (this includes CGAP as the acronym stood for Consultative Group to Assist the Poorest till 2002 and thereafter it preferred to call itself as Consultative Group to Assist the Poor), donors, funders and the practitioners gave up their efforts to support the poorest. So, the MDGs relating to alleviating poverty will remain a distance dream.
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