The Case for Microfinance: New Data from the World Bank

Most public policies go through fad cycles.  They start as fledgling proposals and, if successful, morph into “an idea who’s time has come.”    In many cases, backlash is the next stage as critics point to flaws in the idea and new evidence raises questions about policy or program effectiveness.

The field of microfinance offers a great case in point.  Pioneered in Bangladesh by Grameen Bank, the practice of using microloans to aid the poor soon went global and microfinance programs can now be found around the world.   But, the past years have been tough for microfinance advocates.  Grameen Bank founder Mohammed Yunus has been under political attack at home, and numerous research studies questioned whether microfinance worked.  (Here and here are some examples of recent critiques.)

Recently, researchers at the World Bank reported data from the longest and most rigorous evaluation of microfinance programs developed to date.  Their report, Dynamic Effects of Microcredit in Bangladesh, tracks program development and outcomes over the course of 20 years, and finds that these effort do indeed help lift people out of poverty.  Families participating in microcredit schemes benefit from higher household assets, higher expenditures, and improved education outcomes.  Moreover, the programs offer even greater benefits for women than for men.  These impacts are large and persistent over time.   While this rigorous report should not be viewed as the last word, it is further compelling evidence that investments in microcredit work.

 

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