Microloans Don’t Solve Poverty

Microloans for as low as $25 have long been praised for triggering innovative entrepreneurship and reducing poverty – by allowing the purchase of a few chickens or a cell phone. Ben Casselman takes a more critical look at microloans for FiveThirtyEight, writing, “A series of six independently conducted randomized controlled trials found that a variety of microlending programs had little to no effect on participants’ income or financial well-being …. Microcredit has grown into a $60-billion-plus industry reaching 200 million borrowers worldwide despite limited evidence that it actually achieves its goals.” On the other hand, the research also discredits critics’ allegations that borrowers have been overwhelmed by microloan debts. Microloan programs could be improved and useful for regions lacking access to credit. Some lenders reject the findings, but the researchers counter that such studies help discern which programs and features are most effective. – YaleGlobal