Can Microcredit Make Poverty History?

How much do we really know about how microcredit works, and why is this important? While there is a fair amount of empirical evidence on how the poor are credit constrained, when we design a microcredit program, should we think about it as a tool for credit and business productivity alone, or could it be a tool for empowerment of certain groups, for increasing welfare through investments in health and education, or to spur innovation and growth? Do these effects reinforce each other, or do they cancel each other out?

Understanding the mechanisms through which microcredit can impact the poor, and who it can help the most, is critical for the design of more targeted and more cost-effective policy.

As an example, here is some dissent on the promise of microfinance driven by the lack of rigorous empirical evidence on these issues. Dissent may come in the form of challenging whether the program reaches its goals, whether it reaches the population it should

or in the form of challenging the accountability, cost-effectiveness and transparency of the industry that delivers these programs. On this last point, here is a recent controversy on a microcredit scheme that you may be familiar with, Kiva, and on whether it mis-represents the way the financial contributions they receive reach the poor.

A great contribution to the debate suggested by your colleague Antoine