A Mixed Bag

Following hot on the heels of a bunch of results from CMF's long-term study of the impact of microfinance in Hyderabad's slums (covered by my colleagues here and here, and published here and here [both PDFs]), the Center for Global Development recently released a study by David Roodman and Jonathan Morduch re-evaluating non-experimental studies on the impact of microcredit in our neighbours to the East. They find that,

...none convincingly rules out reverse causation. A positive association between microcredit and household spending, for example, may merely indicate that richer families borrow more. With these studies in doubt, solid academic evidence that microcredit reduces poverty is even scarcer than previously understood.

The mounting evidence on the performance of microfinance is beginning to question microfinance as a development mantra. Stay tuned.

ps. Although Michael and Akhand did not talk about the second PDF I linked to that evaluates Spandana data (the paper is called "Dosas by the Dozen"), the author gives an interesting and original account of why micro-entrepreneurs start copy-cat businesses. He argues that the poor's significant time discounting (a desire to see returns from their business today instead of next month or year), results in entrepreneurial risk-aversion. Anyone who has walked down a street in a developing country and wondered just why a consumer would need twelve STD/ISD booths in a row should check out the paper.