It's been a tough season for the proposition that "microfinance is a proven and cost-effective tool to help the very poor lift themselves out of poverty and improve the lives of their families." In May came a randomized trial of microcredit in Hyderabad finding no impacts on poverty 15--18 months out. In June came a paper challenging the leading older-generation studies that seemed to show that microcredit had cut poverty in Bangladesh in the 1990s. Now in July we have another randomized trial, of microcredit in Manila, also finding no impact on bottom-line measures of household welfare.
A couple of people, including Tim Ogden, have raised a good question with me in the last few days: What does this mean for microfinance? Has a myth been debunked? Is the whole movement about to implode in a ball of fire? More precisely, will this research perturb the dominant narrative about microfinance in the public mind, about microenterprise as a reliable ladder out of poverty?
I'm reminded of two Mark Twain saws---the one about lies, damned lies, and statistics; and the one about the reports of his death being greatly exaggerated.
Reasons this isn't quite a David (ahem) and Goliath story:
- The new and randomized trials of credit, though credible, have produced only fragmentary knowledge. On the one hand, that does undercut the assertion that microcredit is a proven anti-poverty tool. On the other, it doesn't prove that microcredit rarely helps. The Karlan and Zinman Manila sample is predominantly middle class---people who were already out of poverty. Their earlier South Africa study looked at four-month loans to people who (I think) could show pay stubs, and who worked in a system that implicitly expected them to borrow in order to pay for on-the-job training. (See previous post.) The one full-bore study of microcredit for poor people without jobs, in Hyderabad, does not look at outcomes beyond the first 15--18 months.
- The Dupas and Robinson randomized study found benefits from savings---again out of sync with myth, but good news for microfinance more broadly.
- Also appearing in the last few months is the great book, Portfolios of the Poor. It makes no claim that microfinance raises income on average. But it does argue that microfinance is valuable in helping people smooth that income (for a price). To put this more personally, I mentally file all those statistical studies in one chapter of my book, "development as measured impact." But since our knowledge of the actual impacts in millions of lives is doomed to be limited, I also devote chapters to other notions of success. The ideas in Portfolios of the Poor fit into my "development as freedom" chapter. And into my "development as institution-building" chapter fits the thesis that a chief contribution of microfinance is its enrichment of the institutional fabric of nations.
In other words, the challenge to microfinance per se is far from mortal.
But I do think the new studies pose a test for the story that microfinance promoters have so effectively constructed. Are we approaching a tipping point, the precipice of a sort of Kuhnian revolution in public perception? Will the new research combine with the recent and dramatic demonstrations of the dangers of debt to depose one image of microfinance and seat another in its place? I of course don't know. But I am launched in this book project in the belief that such change is possible and healthy.