
Micro-Loans Don't Solve Poverty - JacobAldridge
http://fivethirtyeight.com/features/microloans-dont-solve-poverty/
======
hartator
> The fact that they would reach these conclusions that I personally know to
> be false really discredits them in my eyes

That's a weird thing to say when you should beleive at least in the scientific
process.

~~~
bendykstra
> Rupert Scofield, who runs FINCA, one of the largest and most prominent
> microlenders, said randomized controlled trials work well in medicine but
> don’t make sense in evaluating development aid. He said that for years, his
> response to claims like Duflo’s was to say he didn’t need data when he could
> see the effect firsthand.

It sounds like he is suffering cognitive dissonance. He believes in RCTs and
he believes in microlending. To resolve the conflict, he rationalizes first
that RCTs "don't make sense" in the microlending world. Next he decides that
researchers themselves aren't credible as good researchers would not reach a
"false" conclusion.

~~~
Dwolb
Now I'm confused because FINCA themselves launch studies to understand their
impact. Shouldn't they be countering data-based arguments with data-based
arguments?

From the article they link to FINCA's own internally developed study [1] which
at first glance seems to have reasonable metrics [2]. Why not use those to
assess whether you believe independent research methods and data were properly
developed and analyzed?

As a side note, I like how AQR handles similar criticisms and releases Cliff's
Perspectives [3] which use data and logic to evaluate arguments for or against
their own or competitive portfolio strategies.

[1] [http://www.finca.org/files/2015/06/FINCA-MasterCard-From-
Int...](http://www.finca.org/files/2015/06/FINCA-MasterCard-From-Intentions-
to-Outcomes-FINAL.pdf)

[2] [http://imgur.com/eaUGNCH](http://imgur.com/eaUGNCH)

[3] [https://www.aqr.com/cliffs-perspective](https://www.aqr.com/cliffs-
perspective)

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worldadventurer
Here's another critical perspective on microloans:

 _A local “demand constraint” underlies two of the main shortcomings
associated with microcredit: displacement and exit. Displacement occurs when
new jobs and incomes registered in one microcredit-supported enterprise are
cancelled out by the decline in jobs and incomes in incumbent competitor
microenterprises. Exit is the process whereby both new and existing
microenterprises are forced to close, due to the additional supply of informal
microenterprises operating in the same sector.

Nonetheless, these obvious shortcomings also help explain why, as even
longstanding supporters now acknowledge, there is no empirical evidence
showing microcredit cuts poverty. As a rule, it simply boosts the rate of
informal microenterprise entry, which is then followed by an equally high rate
of displacement and exit, creating nothing more than an unproductive and
wasteful local dynamic known as “churn” or “turbulence.”_

Source: [https://www.jacobinmag.com/2015/11/microcredit-muhammad-
yunu...](https://www.jacobinmag.com/2015/11/microcredit-muhammad-yunus-bono-
clinton-foundation-global-poverty-entrepreneurial-charity/)

------
aaron695
Micro-loans have always been on par with loan sharks, the interest rates are
similar. (Loan sharks don't pay tax, don't have to pay foreign wages)

So, I can see why there is no real reason they will work. Most people can
access loan sharks.

Places that run micro-loans might be nicer but they are not introducing an
amazing new opportunity.

~~~
wodenokoto
While pricing might be similar to loan sharks, they don't cut off your
fingers.

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chrramirez
I would like to add that maybe the problem are not the [micro|macro]-loans,
but people. Loans are basic bricks for an economic development in any society.
Sadly, they can't save a bad business from failure.

So my point is that maybe a poor borrower investing in a bad business will end
up poorer. Other scenario, mentioned in the article, are poor people lending
money for non productive expenses.

A basic financial advice applies here: Invest in a productive business and try
not to borrow money for non productive expenses.

~~~
lawpoop
I think you basically reiterate the point here: if you are in poverty, you
don't have enough money for basic necessities (read: non-productive expenses);
therefore, you can choose to spend any extra money on those necessities, or go
without.

In other words, microloans don't solve poverty.

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SmallBets
I like the thoughts here on micro vs macro finance in the developing world:
[https://www.ted.com/talks/sangu_delle_in_praise_of_macro_yes...](https://www.ted.com/talks/sangu_delle_in_praise_of_macro_yes_macro_finance_in_africa?language=en#t-301820)

i.e. maybe less gofundme and more kickstarter/angelist can have an impact.

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Confusion
Cites specific research that supports their belief. Does not cite any of the
research that suggests microloans do in fact work.

And anyway, if they successfully make a business out of making loans to people
that would otherwise not have access to loans, while not negatively impacting
those people: good for them.

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knughit
My problem with microloams is that they seem rife with dishonesty somewhere
between propaganda bullshit and fraud. claims high repayment and "choose who
you lend to", but semisecretly distributes money through local loan sharks who
charge high interest.

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bedhead
More evidence that poverty is a symptom, not the disease.

