America
Micro-credit not transforming lives of poor: Study
A study conducted in six
countries including India has revealed that while micro-credit -
providing small loans to under served entrepreneurs - has some benefits,
it is not a viable poverty alleviation tool.
The studies,
conducted independently in India, Bosnia and Herzegovina, Ethiopia,
Mexico, Mongolia and Morocco followed over 37,000 individuals in total.
The
studies, conducted by researchers affiliated with US-based non-profit
Innovations for Poverty Action (IPA) and The Abdul Latif Jameel Poverty
Action Lab (J-PAL) - a research centre at the Massachusetts Institute of
Technology (MIT) - found that small, short-term loans generally do not
lead to increased income, investments in children's schooling or
substantial gains in women's empowerment.
"The studies do not
find clear evidence of reductions in poverty or substantial improvements
in living standards. Nor is there robust evidence of improvements in
social indicators," the introductory paper to the studies read.
Across
all six studies, researchers conducted randomised evaluations in which
one group of potential borrowers received access to micro-credit, while
the other group received no such offer.
By comparing outcomes
between these two randomly chosen groups, researchers were able to
identify the effect of expanded access to micro-credit on business
activity, financial behaviour and household welfare.
The results
showed modest, but not transformative, improvement in the lives and
financial well being of individuals one to four years after they
accessed micro-loans.
All studies found some evidence of expanded
business activity but these investments did not often result in
significant increases in profits.
"These loans do help but the
changes are not transformative, certainly not transformative enough to
justify charitable donations to the standard micro-credit model," said
economist Esther Duflo, co-founder and co-director of J-PAL.
Duflo
suggests that researchers and non-profits should focus their attention
on other approaches for financial inclusion for the poor.
"We
must think beyond the standard micro-credit model," said economist Dean
Karlan of Yale University and founder of Innovations for Poverty Action.
The studies were released in a paper that appeared in the American Economic Journal: Applied Economics.