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YARTOM*

*Yet Another Randomized Trial of Microcredit

The latest randomized study of the impact of microcredit has popped up on the web. Snarky blog post title notwithstanding, I very much welcome having yet another randomized test of microcredit---by my count, the fifth---because only after we test in a variety of forms and circumstances can we generalize with (cautious) confidence. We have been fortunate in the diversity so far: group and individual microcredit, rural and urban locales in India, the Philippines, Morocco, Mongolia, and now Bosnia and Herzegovina.

The cooperating lender in this newest study was EKI, one of a clutch of microlenders created and financed by outsiders after the explosion of Yugoslavia. I believe it is the first non-profit studied, an important distinction given all the debate about the role of the profit motive in microcredit. And, somewhat bizarrely, the study brings diversity of another kind to the literature: where the India and Morocco trials took place in overheating markets, this one occurred as economic crisis hit and a microcredit bubble popped. In December 2008, as the experiment began, EKI had a "portfolio at risk" (loan amounts outstanding owed by those at least 30 days behind on repayment) of just 1.63%. Within a year, the PAR shot to 10.83%.

Rigor Reduces Bias

One contention in my work is that the new, experimental microfinance impact studies are more reliable than the older, non-experimental ones, not to the individual success stories on microfinance web sites.

A working paper by Ram Rajbanshi, Meng Huang, and Bruce Wydick speaks to this thesis in an interesting way. To whet your appetite for my pedagogic exegesis, here's a passage from the introduction:

Development as Freedom

CGAP's main blog just posted another contribution from me summarizing a chapter of my book. This one is on chapter 7, which evaluates microfinance from the "development as freedom" perspective.

In sum, I see financial services as inherently empowering—after all, they exist to help people manage their financial affairs—but not automatically so.

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