Microfinance
Microfinance has Limited Impact
The Times of India reports that microfinance has limited development impact: The End of Poverty (16 Dec 2006).
Many studies show that the impact of microcredit is limited. Vijay Mahajan, founder of Basix, India’s best-known MFI, has the following to say:
“In an impact assessment study carried out at Basix six years after inception, we found that only 52% of our three-year plus microcredit customers reported an increase in income, 23% reported no change while another 25% actually reported a decline.
Hmm…So mainstream media seems to be getting the drift. Poverty, and solutions to it, aren’t as easy as some would have us believe. The article, particularly in its print version, is worth a read, with a nice summary of all the major theories for poverty alleviation out there. If nothing else, it is worthy for being a fresh perspective from a domestic media that seldom produces anything noteworthy.
It is not news that Microfinance doesn’t work the wonders we ascribed to it. But it is interesting to note that MFIs have, in the absence of objective studies, used their own internal data to conduct such assessments. Because this is tricky territory. After all, how many MFIs would want to conduct studies that undermine their biggest reason to exist - namely poverty alleviation?
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[...] Abraham George writes in an article at the Knowledge@Wharton website that only 5% of borrowers among 50 microcredit programs in India start their own ventures. A study by Basix, an Indian MFI, showed that only 52% of borrowers reported an increase in income. Most significantly, even for the 52% reporting increased income, only a correlation is established, not causation. [...]