Six studies in four continents also reveal that small loans had no impact on women’s empowerment
Six studies in four continents, including one in India, have shown no evidence of microcredit successfully alleviating poverty, researchers said on Friday.
Microcredit also had no impact on women’s empowerment, the findings showed, upturning one of the articles of faith of development policy, including in India.
Conducted by researchers affiliated to Innovations for Poverty Action (IPA) and The Abdul Latif Jameel Poverty Action Lab (J-PAL) at MIT, which has gained a global reputation for its field experimentation approach to finding solutions to poverty, the studies were done in Bosnia and Herzegovina, Ethiopia, Mexico, Mongolia, Morocco and India, with Hyderabad as the site.
Researchers evaluated a group with access to microcredit with one that did not — both randomly chosen — to determine the effect of small loans on poverty and living standards.
In some of the studies, microcredit allowed borrowers to expand small businesses to some extent, and change the way they earned money — cutting back on wage labour in Mexico, for instance. However, there was no clear evidence of increased profits, better consumption or better living standards. There was no impact on the rate of enrolment for children in schools or women’s empowerment.
“These loans do help, but the changes are not transformative, certainly not transformative enough to justify charitable donations to the standard microcredit model,” said economist Esther Duflo, co-founder of J-PAL. “We have seen, though, that these are viable profit-making products,” she added, saying this was something investors would be interested in.
Such fears about the profit-making side of microcredit trumping its poverty alleviation side grew in Andhra Pradesh in 2012 in the wake of a spate of suicides by borrowers. In the Hyderabad study, the microfinance group Spandana gave loans of up to Rs. 10,000 in 120 locations in the city. Tracked over five years, the borrowers were no more likely to own businesses than others, there was no significant difference in consumption and no impact on education, health or female empowerment. However, borrowers were more likely to invest in durable goods and less likely to spend on “temptations” such as tobacco and eating out.
Six studies in four continents, including one in India, have shown no evidence of microcredit successfully alleviating poverty, researchers said on Friday.
Microcredit also had no impact on women’s empowerment, the findings showed, upturning one of the articles of faith of development policy, including in India.
Conducted by researchers affiliated to Innovations for Poverty Action (IPA) and The Abdul Latif Jameel Poverty Action Lab (J-PAL) at MIT, which has gained a global reputation for its field experimentation approach to finding solutions to poverty, the studies were done in Bosnia and Herzegovina, Ethiopia, Mexico, Mongolia, Morocco and India, with Hyderabad as the site.
Researchers evaluated a group with access to microcredit with one that did not — both randomly chosen — to determine the effect of small loans on poverty and living standards.
In some of the studies, microcredit allowed borrowers to expand small businesses to some extent, and change the way they earned money — cutting back on wage labour in Mexico, for instance. However, there was no clear evidence of increased profits, better consumption or better living standards. There was no impact on the rate of enrolment for children in schools or women’s empowerment.
“These loans do help, but the changes are not transformative, certainly not transformative enough to justify charitable donations to the standard microcredit model,” said economist Esther Duflo, co-founder of J-PAL. “We have seen, though, that these are viable profit-making products,” she added, saying this was something investors would be interested in.
Such fears about the profit-making side of microcredit trumping its poverty alleviation side grew in Andhra Pradesh in 2012 in the wake of a spate of suicides by borrowers. In the Hyderabad study, the microfinance group Spandana gave loans of up to Rs. 10,000 in 120 locations in the city. Tracked over five years, the borrowers were no more likely to own businesses than others, there was no significant difference in consumption and no impact on education, health or female empowerment. However, borrowers were more likely to invest in durable goods and less likely to spend on “temptations” such as tobacco and eating out.
Source - The Hindu
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