Friday, May 29, 2009

Bad News for Microfinance Proponents

. Friday, May 29, 2009

The results of the first randomized trial of the effects of microfinance are in [pdf], and the conclusion is mixed:

On balance our results show significant and not insubstantial impact on both how many new businesses get started and the profitability of new businesses. We also do see some impact on the purchase of durables, and especially business durables. However there is no impact on average consumption, though as we will argue later, there may well be a delayed positive effect on consumption. Nor is there any discernible effect on any of the human development outcomes, though, once again, it is possible that things will be different in the long run.

Basically, microfinance is good for those who are already have businesses but need some cash to make investments that boost productivity. It may make it possible for some others to start their own businesses, but the evidence for this is indirect. Its effect on "human development" indicators like health, education, or women's empowerment is basically nil, although the study only looks at short-term effects. In short, the effusive language often used by microfinance proponents may have to be toned down a good bit. Pointer from the World Bank's PSD blog, which notes:

As the authors note, the impact of microfinance in education, health, etc. may not appear for quite some time. In normal times, we would just wait another year or so and take another survey. However, the financial crisis means these are not normal times. If, in a year or two, a new set of results appears to indicate no impact on human development, the randomistas could claim this as a failure of microfinance. In turn, the microfinance proponents will claim that the financial crisis invalidates the findings, arguing that the ROI for small-scale entrepreneurs was abnormally low due to the crisis. Unfortunately, we'll simply have no way to know for sure who's right.

Back in February, erstwhile co-blogger Sarah had a post on the effects on microfinance of the global economic downturn. It is here.


Bad News for Microfinance Proponents




Add to Technorati Favorites