Posted on December 30, 2009 - by James

New York Times: The Role of Microfinance

Does the aid world exaggerate the benefits of microloans? How much do they help? Here’s a thoughtful, evidence-based analysis by three economics professors: Abhijit Vinayak Banerjee and Esther Duflo of M.I.T, and Dean Karlan of Yale. Their work is sometimes cited in critiques of microlending, so here’s their take:

Microcredit is undoubtedly the most visible innovation in anti-poverty policy in the last half century. In the three decades since Mohammed Yunus gave his first loan to a group of Bangladeshi women, the number of microcredit borrowers has crossed 150 millions. The majority had no access to credit from banks before microcredit came to them. When they needed to borrow, and most people do at some point or the other–to pay for an illness or a wedding, to grow a business or to fix their roof—they would go to money lenders and pay rates that have, justly or otherwise, accounted for the universal unpopularity of moneylenders (they can be over 20% per month). Now they borrow from MFIs at significantly lower (though often high by US standards) rates. At the same time MFIs have managed to find ways to be financially sustainable and to keep growing fast.

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