Does Microfinance Help Poor People?
Ever since microcredit first began to capture public attention 25 years ago, the usual story line has been that it is a tool of extraordinary power to lift poor people—especially women— out of poverty, by funding their microenterprises and raising their incomes. This picture has been buttressed by hundreds of inspiring stories of microentrepreneurs who used tiny loans to start or expand their businesses, and experienced remarkable gains not only in income and consumption but also in health, education, and social empowerment. But how well do these individual anecdotes represent the general experience of the hundreds of millions who have gotten microloans and other microfinance services? Is microcredit—or microfinance more generally—being oversold? A Claim in Doubt Unfortunately, scientific testing of the impact of microcredit is surprisingly difficult. If we find that people who got microloans are doing better than those who didn’t, does this mean that the loans caused the improvement?
