Does ‘microlending’ actually fight poverty?
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Re: Does ‘microlending’ actually fight poverty?
#2Entrepreneurial skill is a rare human trait. But they lift the rest of us beyond starting from scratch with flint and bearskins, so it shouldn't be dismissed just because it isn't universal. Have those same studies looked at accumulation of capital and infrastructural reinvestment in regions saturated with microcredit? I suspect a left wing bias that views the rising few with suspicion.
Re: Does ‘microlending’ actually fight poverty?
#3>They created their controlled experiment by altering the algorithm the bank used to evaluate creditworthiness so that some borderline applicants were randomly denied loans while other otherwise identical applicants had loans approved.
So maybe the banks need to set a higher threshold on who they loan to. This doesn't say much about the effectiveness of microcredit for well-qualified applicants.
Re: Does ‘microlending’ actually fight poverty?
#4I'd really be interested in seeing the published research. I do however agree with the point that there are too many practitioners and advocates who see microfinance as a panacea - and in many ways it is a radical departure from the way aid has previously been provided as it provides a real potential for being a sustainable way to deliver financial services to the poor.
This being said, it is difficult to isolate the effects of finance - and you can't generalize microfinance globally as it really depends on the local regulatory environment as to how successful it can be. To generalize as the Boston Globe has done is to say that the banking sector in Canada, US, Britain, France, etc. are all the same - when we know (the hard way) they are not. Microfinance - like all finance is a great and important step for businesses (and it's not just credit, but other access to bank accounts,etc that the poor in these countries previously had no access to), but it's just one component to building wealth.
For a broader view of development - I'd point to the world bank's doingbusiness.org study - the latest of which just came out a week or two that looks at all areas of business like how easy it is to legally set up a new business, close an old one down, etc.: http://doingbusiness.org/
Re: Does ‘microlending’ actually fight poverty?
#5>They created their controlled experiment by altering the algorithm the bank used to evaluate creditworthiness so that some borderline applicants were randomly denied loans while other otherwise identical applicants had loans approved. So maybe the banks need to set a higher threshold on who they loan to. This doesn't say much about the effectiveness of microcredit for well-qualified applicants.
You may also be interested in another study done a few years ago that was based on random samplings of high interest rate loans to the poor: http://online.wsj.com/article/SB119388104410378595.html?mod=...
Excerpt: "The lender charged its normal rate: 200% APR. The remaining, just-below-the-normal-approval-bar applicants (the "control group") were rejected in line with the lender's normal credit policy. We then tracked both groups over the next six to 27 months, measuring their well-being based on a range of economic, social, health and mental health measures. Applicants who were randomly approved for a loan had higher incomes, less hunger, better credit scores and more positive outlooks than their control group counterparts -- even after paying the high interest rate. Though they had higher than normal default rates, the borderline loans were also profitable for the lender."
Re: Does ‘microlending’ actually fight poverty?
#6Well, last time I checked microlending had a repayment rate over 90%, so it certainly must have some impact. If it wasn't effective in fighting poverty, I doubt you'd see such a high repayment rate. Will microlending alone solve the problem? No. But it's one of the best tools we've got so far.
Re: Does ‘microlending’ actually fight poverty?
#7Entrepreneurial skill is a rare human trait. But they lift the rest of us beyond starting from scratch with flint and bearskins, so it shouldn't be dismissed just because it isn't universal. Have those same studies looked at accumulation of capital and infrastructural reinvestment in regions saturated with microcredit? I suspect a left wing bias that views the rising few with suspicion.
It does seem a bit too convenient that they are reporting on and reporting the researcher conclusions without feeling the need to actually publish the underlying research and opening themselves to scrutiny - but hopefully that will come out soon enough.
The difficulty of doing this in the field is trying to figure out what the appropriate methodologies to use are. It's not like it's easy to collect this information over time and ensure people are forthcoming (and in many regions where microfinance thrives, the poor are especially and legitimately suspicious of authority and people wanting personal information). Collecting information often becomes a messy process in collecting objective and comprehensive data.
Re: Does ‘microlending’ actually fight poverty?
#8I would really ask the question, ‘Why did we expect all these things to happen?’ If you give people access to a financial instrument, it’s like any other instrument. It’s useful, but it’s not like the miracle drug to end poverty.
A rough reality. I trust that MIT will publish the research with the same conclusions. It is really unfortunate. I was really excited about millions of people digging themselves out of poverty. Alas, it is much more complicated than that.
Re: Does ‘microlending’ actually fight poverty?
#9Entrepreneurial skill is a rare human trait. But they lift the rest of us beyond starting from scratch with flint and bearskins, so it shouldn't be dismissed just because it isn't universal. Have those same studies looked at accumulation of capital and infrastructural reinvestment in regions saturated with microcredit? I suspect a left wing bias that views the rising few with suspicion.
IMHO, entrepeneurial skill is not a 'human trait', gift or anything - it's just a skill, like any other - you can develop it if you absolutely need it to survive (usually the case for microlenders). I'd say the reason why there are usually less entrepeneurs than 'normal' people is more on taste than 'talent': if you're doing just fine with a paycheck, why bother?
Re: Does ‘microlending’ actually fight poverty?
#10Entrepreneurial skill is a rare human trait. But they lift the rest of us beyond starting from scratch with flint and bearskins, so it shouldn't be dismissed just because it isn't universal. Have those same studies looked at accumulation of capital and infrastructural reinvestment in regions saturated with microcredit? I suspect a left wing bias that views the rising few with suspicion.
IMHO, entrepeneurial skill is not a 'human trait', gift or anything - it's just a skill, like any other - you can develop it if you absolutely need it to survive (usually the case for microlenders). I'd say the reason why there are usually less entrepeneurs than 'normal' people is more on taste than 'talent': if you're doing just fine with a paycheck, why bother?
I'm curious to see your evidence. I have noticed in life many businesses that pay the salary and the rent, but I wouldn't count them as entrepreneurial - they lack the explosive upward trajectory, and I don't think I was just seeing the slow part of the exponential. Real skill as an entrepreneur seems to me more like perfect pitch - a mutation.