Microcredit and Poverty: When Microcredit Works and When It Doesn't
DOI:
https://doi.org/10.6000/1929-7092.2015.04.12Keywords:
Microcredit, poverty reduction, labor market, and technology.Abstract
This paper explores the relationship between microcredit and poverty reduction. To investigate this question, we posit a bare-bone, household model that outlines the economic environment within which various types of family- microenterprises operate. It highlights a number of issues that impinge on household earnings such as the nature of the labor market, technology, product demand and entrepreneurial skills. The paper argues that the impact of microcredit is likely to be different across household types as well as across different economic environments. The paper identifies several important demand and supply constraints to the household's graduation from poverty. These constraints are difficult to overcome in a traditional economic environment, marked by stagnant technology and market saturation.
References
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http://dx.doi.org/10.1257/app.20130537
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http://dx.doi.org/10.1257/app.20130489
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http://dx.doi.org/10.1257/app.20130533
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Besley, T. and S. Coate. 1995. “Group Lending, Repayment Incentives, and Social Collateral.” Journal of Development Economics 46 (1): 1-18.
http://dx.doi.org/10.1016/0304-3878(94)00045-E
Blackorby, C. and D Donalson.1987. “Welfare Ratios and Distributionally Sensitive Cost-Benefit Analysis.” Journal of Public Economics 34(3), December, 265-290.
http://dx.doi.org/10.1016/0047-2727(87)90001-6
Chowdhury, Anis. 2009. “How Effective Is Microfinance as a Poverty Reduction Tool?” UN DESA Working Paper NO 89. http://www.un.org/esa/desa/papers/2009/wp89_2009.pdf
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http://dx.doi.org/10.1257/app.20130535
Duvendack M, Palmer-Jones R, Copestake JG, Hooper L, Loke Y, N. Rao. 2011. “What Is the Evidence of the Impact of Microfinance on the Well-Being of Poor People?” London: EPPI-Centre, Social Science Research Unit, Institute of Education, University of London.
Ghatak, M. 2000. “Screening by the Company You Keep: Joint Liability Lending and the Peer Selection Effect.” Economic Journal, 110 (465), 601-631.
http://dx.doi.org/10.1111/1468-0297.00556
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Karlan, Dean and J. Morduch. 2010. “Access to Finance”, in Handbook of Development Economics 5, edited by Dani Rodrik and Mark Rosenzweig. New York: North-Holland.
http://dx.doi.org/10.1016/b978-0-444-52944-2.00009-4
Karlan, Dean and J. Zinman. 2009. “Expanding Microenterprise Credit Access.” Department of Economics, Yale University, New Haven.
Laffont, J and T. N’ Guessan. 2000. “Group Lending With Adverse Selection.” European Economic Review 44(4-6): 773-784.
http://dx.doi.org/10.1016/S0014-2921(99)00041-0
Mammen, K and C. Paxson. 2000. “Women’s Work and Economic Development.” Journal of Economic Perspectives 14 (4): 141-164.
http://dx.doi.org/10.1257/jep.14.4.141
MIX: Microfinance Information Exchange (2011). “Microfinance at a Glance.” http://www.mixmarket.org/
Moyo, Dambisa. 2009. Dead Aid: Why Aid Is Not Working and How There Is Another Way For Africa. New York: Farrar, Straus, and Giroux.
Morduch, Jonathan.1998. “Does Microfinance Really Help the Poor? New Evidence from Flagship Programs in Bangladesh.” Mimeo, New York University. Department of Economics. http://www.nyu.edu/projects/morduch/documents/microfinance/Does_Microfinance_Really_Help.pdf.
New York Times. 2005. “Ten Questions for Bono,” New York Times 21 September.
Osmani, S. R. 1989. “Limits to the Alleviation of Poverty through Non-farm Credit.” Bangladesh Development Studies 17(4): 1-18.
Pitt, Mark M. 2014.” Response to ‘The Impact of Microcredit on the Poor in Bangladesh: Revisiting the Evidence.” Journal of Development Studies, 50(4): 605-610.
http://dx.doi.org/10.1080/00220388.2013.868141
Pitt, Mark M. and Shahidur R. Khandker. 1998. “The Impact of Group-Based Credit on Poor Households in Bangladesh: Does the Gender of Participants Matter?” Journal of Political Economy 106(5): 958–96.
http://dx.doi.org/10.1086/250037
Quibria, M.G. 2014. “Aid Effectiveness: Research, Policy, and Unresolved Issues.” Development Studies Research 1(1): 75-87.
http://dx.doi.org/10.1080/21665095.2014.922890
Quibria, M.G. 2015. “Microcredit and RCT: A Note.” Mimeo, Bangladesh Institute of Development Studies, Dhaka.
Rai, A.S. and T. Sjostrom, 2004. “Is Grameen Lending Efficient? Repayment Incentives and Insurance in Village Economies.” Review of Economic Studies 71(1): 217-234.
Rashid, S. 2014. “If Finance Works, Microfinance Works: Contextual Evaluation and the Irrelevance of Randomized Controlled Trials.” Journal of Poverty Evaluation and International Development 5(2): 117-143.
Roodman, D. and Jonathan Morduch. 2014. “The Impact of Microcredit on the Poor in Bangladesh: Revisiting the Evidence.” Journal of Development Studies 50(4): 583-604.
http://dx.doi.org/10.1080/00220388.2013.858122
Sachs, Jeffrey D. 2005. The End of Poverty: Economic Possibilities for Our Time. New York: Penguin Books.
Schultz, T. 1964. Transforming Traditional Agriculture. New Haven: Yale University Press.
de Soto, Hernando. 2009. “Toxic Assets were Hidden Assets, ” Wall Street Journal, March 25. http://www.wsj.com/articles/ SB123793811398132049
Stiglitz, J. 1990. “Peer Monitoring and Credit markets.”World Bank Economic Review 4(3): 351-66.
http://dx.doi.org/10.1093/wber/4.3.351
Surowiecki, James. 2008. “What Microloans Miss,” New Yorker, March 17. http://www.newyorker.com/magazine/2008/03/17/ what-microloans-miss
Tarozzi, Alessandro, Jaikishan Desai, and Kristin Johnson. 2015. ""The Impacts of Microcredit: Evidence from Ethiopia."" American Economic Journal: Applied Economics 7(1): 54-89.
http://dx.doi.org/10.1257/app.20130475
Weiss, J. and H. Montgomery. 2004. “Great Expectations: Microfinance and Poverty Reduction in Asia and Latin America.” Tokyo: ADB Institute Working Paper 15.
Yunus, Muhammad. 2007. Creating a World without Poverty: Social Business and the Future of Capitalism. New York: Public Affairs.
Yunus, Muhammad. 2010. Building Social Business. New York: Public Affairs.
Zheng, B. 1993. “An Axiomatic Characterization of the Watts Poverty Index.” Economics Letters 42(1), 81-86.
http://dx.doi.org/10.1016/0165-1765(93)90177-E
Ahlin, C., J. Lin, and Michael Maio. 2011. “Microfinance Flourish? Microfinance Institution Performance in Macroeconomic Context. ” Journal of Development Economics 95(2), July, 105-120.
http://dx.doi.org/10.1016/j.jdeveco.2010.04.004
Ahlin, C. and N. Jiang. 2008. “Can Micro-Credit Bring Development?” Journal of Development Economics 86 (1), 1-21.
http://dx.doi.org/10.1016/j.jdeveco.2007.08.002
Aghion, B. and J. Morduch.2006. The Economics of Microfinance. Cambridge, MA: MIT Press.
Angelucci, Manuela, Dean Karlan, and Jonathan Zinman. 2015. ""Microcredit Impacts: Evidence from a Randomized Microcredit Program Placement Experiment by Compartamos Banco."" American Economic Journal: Applied Economics 7(1): 151-82.
http://dx.doi.org/10.1257/app.20130537
Attanasio, Orazio, Britta Augsburg, Ralph De Haas, Emla Fitzsimons, and Heike Harmgart. 2015. ""The Impacts of Microfinance: Evidence from Joint-Liability Lending in Mongolia."" American Economic Journal: Applied Economics 7(1): 90-122.
http://dx.doi.org/10.1257/app.20130489
Augsburg, Britta, Ralph De Haas, Heike Harmgart, and Costas Meghir. 2015. ""The Impacts of Microcredit: Evidence from Bosnia and Herzegovina."" American Economic Journal: Applied Economics 7(1): 183-203.
http://dx.doi.org/10.1257/app.20130272
Banerjee, Abhijit, Esther Duflo, Rachel Glennerster, and Cynthia Kinnan. 2015. ""The Miracle of Microfinance? Evidence from a Randomized Evaluation."" American Economic Journal: Applied Economics 7 (1): 22-53.
http://dx.doi.org/10.1257/app.20130533
Bateman, Milford and Ha-Joon Chang. 2009. “The Microfinance Illusion.” Mimeo. http://www.econ.cam.ac.uk/faculty/chang/ pubs/Microfinance.pdf
Besley, T. and S. Coate. 1995. “Group Lending, Repayment Incentives, and Social Collateral.” Journal of Development Economics 46 (1): 1-18.
http://dx.doi.org/10.1016/0304-3878(94)00045-E
Blackorby, C. and D Donalson.1987. “Welfare Ratios and Distributionally Sensitive Cost-Benefit Analysis.” Journal of Public Economics 34(3), December, 265-290.
http://dx.doi.org/10.1016/0047-2727(87)90001-6
Chowdhury, Anis. 2009. “How Effective Is Microfinance as a Poverty Reduction Tool?” UN DESA Working Paper NO 89. http://www.un.org/esa/desa/papers/2009/wp89_2009.pdf
Collins, Chuck, Mike Lapham and Scott Klinger. 2004. I Didn't Do It Alone: Society's Contribution to Individual Wealth and Success. Boston: Responsible Wealth, a project of United for a Fair Economy. http://www.faireconomy.org/files/pdf/ notalonereportfinal.pdf
E-magazine of Credit Suisse. 2008. “Muhammad Yunus looks to consign poverty into the Museum.” https://www.credit-suisse.com/us/en/about-us/corporate-responsibility/news/microfinance.article.html/article/pwp/news-and-expertise/2008/11/en/muhammad-yunus-looks-to-consign-poverty-to-the-museum.html
Crépon, Bruno, Florencia Devoto, Esther Duflo, and William Parienté. 2015. ""Estimating the Impact of Microcredit on Those Who Take It Up: Evidence From a Randomized Experiment in Morocco."" American Economic Journal: Applied Economics 7(1):123-50.
http://dx.doi.org/10.1257/app.20130535
Duvendack M, Palmer-Jones R, Copestake JG, Hooper L, Loke Y, N. Rao. 2011. “What Is the Evidence of the Impact of Microfinance on the Well-Being of Poor People?” London: EPPI-Centre, Social Science Research Unit, Institute of Education, University of London.
Ghatak, M. 2000. “Screening by the Company You Keep: Joint Liability Lending and the Peer Selection Effect.” Economic Journal, 110 (465), 601-631.
http://dx.doi.org/10.1111/1468-0297.00556
Hayami, Yujiro. 2006. “Toward Rural-based Development in East Asia under Globalization.” FASID Mimeo.
Karlan, Dean and J. Morduch. 2010. “Access to Finance”, in Handbook of Development Economics 5, edited by Dani Rodrik and Mark Rosenzweig. New York: North-Holland.
http://dx.doi.org/10.1016/b978-0-444-52944-2.00009-4
Karlan, Dean and J. Zinman. 2009. “Expanding Microenterprise Credit Access.” Department of Economics, Yale University, New Haven.
Laffont, J and T. N’ Guessan. 2000. “Group Lending With Adverse Selection.” European Economic Review 44(4-6): 773-784.
http://dx.doi.org/10.1016/S0014-2921(99)00041-0
Mammen, K and C. Paxson. 2000. “Women’s Work and Economic Development.” Journal of Economic Perspectives 14 (4): 141-164.
http://dx.doi.org/10.1257/jep.14.4.141
MIX: Microfinance Information Exchange (2011). “Microfinance at a Glance.” http://www.mixmarket.org/
Moyo, Dambisa. 2009. Dead Aid: Why Aid Is Not Working and How There Is Another Way For Africa. New York: Farrar, Straus, and Giroux.
Morduch, Jonathan.1998. “Does Microfinance Really Help the Poor? New Evidence from Flagship Programs in Bangladesh.” Mimeo, New York University. Department of Economics. http://www.nyu.edu/projects/morduch/documents/microfinance/Does_Microfinance_Really_Help.pdf.
New York Times. 2005. “Ten Questions for Bono,” New York Times 21 September.
Osmani, S. R. 1989. “Limits to the Alleviation of Poverty through Non-farm Credit.” Bangladesh Development Studies 17(4): 1-18.
Pitt, Mark M. 2014.” Response to ‘The Impact of Microcredit on the Poor in Bangladesh: Revisiting the Evidence.” Journal of Development Studies, 50(4): 605-610.
http://dx.doi.org/10.1080/00220388.2013.868141
Pitt, Mark M. and Shahidur R. Khandker. 1998. “The Impact of Group-Based Credit on Poor Households in Bangladesh: Does the Gender of Participants Matter?” Journal of Political Economy 106(5): 958–96.
http://dx.doi.org/10.1086/250037
Quibria, M.G. 2014. “Aid Effectiveness: Research, Policy, and Unresolved Issues.” Development Studies Research 1(1): 75-87.
http://dx.doi.org/10.1080/21665095.2014.922890
Quibria, M.G. 2015. “Microcredit and RCT: A Note.” Mimeo, Bangladesh Institute of Development Studies, Dhaka.
Rai, A.S. and T. Sjostrom, 2004. “Is Grameen Lending Efficient? Repayment Incentives and Insurance in Village Economies.” Review of Economic Studies 71(1): 217-234.
Rashid, S. 2014. “If Finance Works, Microfinance Works: Contextual Evaluation and the Irrelevance of Randomized Controlled Trials.” Journal of Poverty Evaluation and International Development 5(2): 117-143.
Roodman, D. and Jonathan Morduch. 2014. “The Impact of Microcredit on the Poor in Bangladesh: Revisiting the Evidence.” Journal of Development Studies 50(4): 583-604.
http://dx.doi.org/10.1080/00220388.2013.858122
Sachs, Jeffrey D. 2005. The End of Poverty: Economic Possibilities for Our Time. New York: Penguin Books.
Schultz, T. 1964. Transforming Traditional Agriculture. New Haven: Yale University Press.
de Soto, Hernando. 2009. “Toxic Assets were Hidden Assets, ” Wall Street Journal, March 25. http://www.wsj.com/articles/ SB123793811398132049
Stiglitz, J. 1990. “Peer Monitoring and Credit markets.”World Bank Economic Review 4(3): 351-66.
http://dx.doi.org/10.1093/wber/4.3.351
Surowiecki, James. 2008. “What Microloans Miss,” New Yorker, March 17. http://www.newyorker.com/magazine/2008/03/17/ what-microloans-miss
Tarozzi, Alessandro, Jaikishan Desai, and Kristin Johnson. 2015. ""The Impacts of Microcredit: Evidence from Ethiopia."" American Economic Journal: Applied Economics 7(1): 54-89.
http://dx.doi.org/10.1257/app.20130475
Weiss, J. and H. Montgomery. 2004. “Great Expectations: Microfinance and Poverty Reduction in Asia and Latin America.” Tokyo: ADB Institute Working Paper 15.
Yunus, Muhammad. 2007. Creating a World without Poverty: Social Business and the Future of Capitalism. New York: Public Affairs.
Yunus, Muhammad. 2010. Building Social Business. New York: Public Affairs.
Zheng, B. 1993. “An Axiomatic Characterization of the Watts Poverty Index.” Economics Letters 42(1), 81-86.
http://dx.doi.org/10.1016/0165-1765(93)90177-E
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Published
2015-06-30
How to Cite
Quibria, M. (2015). Microcredit and Poverty: When Microcredit Works and When It Doesn’t. Journal of Reviews on Global Economics, 4, 126–138. https://doi.org/10.6000/1929-7092.2015.04.12
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