World Bank Reports That Microcredit Works After All

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Via Tyler Cowen, the World Bank has released a report that examines microfinance in Bangladesh over the longest period yet studied. The results were quite positive:

The results of the basic model unequivocally show that group-based credit programs have significant positive effects in raising household welfare including per capita consumption, household non-land assets and net worth. Microfinance increases income and expenditure, the labor supply of males and females, non-land asset and net worth as well as boys’ and girls’ schooling. Microfinance, especially female credit, also reduces poverty. The results using long-panel data thus confirm most of the earlier findings that microfinance matters a lot, and more for female than for male borrowers.

….Membership in multiple programs has grown steadily from none to 33 percent in 2010/11….Trading is perhaps now saturated with microcredit loans and households have already started to experience diminishing returns. In such circumstances, households must be assisted through skill training and the development of improved marketing networks to expand activities in more rewarding sectors and beyond the local economy; otherwise, microfinance expansion cannot be sustained. In short, the current microfinance policy of credit expansion alone may not be enough to boost income and productivity, and, hence, sustained poverty reduction.

I don’t have anything to add to this, but I wanted to at least make a note of it. A few years ago, there was a huge vogue in microcredit, which was broadly portrayed as a panacea for poor countries. Then there was a backlash, with several studies suggesting that it had been overhyped and didn’t really improve the lives of the poor much. Now this study, which looks at data over the course of 20 years, strongly concludes that—up to a point—microcredit really does produce results. I’ve been vaguely down on microcredit since reading some of those initial reports a few years ago, and I figure that might be a common response. This study pretty clearly suggests that we shouldn’t have been so pessimistic, and for that reason I wanted to pass it along.

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