Micro-finance - No Solution

The SOYMB blog has posted several times about the short-comings of micro-finance and the over-inflated claims for it as a solution to world poverty. This article confirms our opinion.

“A comprehensive DFID-funded review of extant data concludes that the microfinance craze has been built on ‘foundations of sand’, for ‘no clear evidence yet exists that microfinance programmes have positive impacts’. Just last year, Abhijit Banerjee and Esther Duflo of the Poverty Action Lab reported the results of a randomised evaluation of microcredit in Hyderbad, India, concluding that microcredit caused no significant changes in consumption, health, education or women’s empowerment. Such findings deal a devastating blow to the rosy narrative of microcredit, and yet somehow it still manages to survive.

It’s time to stop pretending that microfinance is a meaningful tool for development. When it comes to poverty reduction, we know exactly what needs to happen. Poverty is a political problem, and as such demands a political solution.

The microcredit industry is profoundly unstable, true, but the bigger problem is that microcredit doesn’t actually work when it comes to accomplishing its stated goal of reducing poverty. As David Roodman from the Center for Global Development put it in his recent book, ‘The best estimate of the average impact of microcredit on the poverty of clients is zero.’ "