Are Microcredits really the Rock Star of International Aid?

There is no magical pill that can cure poverty. And that makes fighting against it very frustrating and long- winded. But if someone finds something that sound very good in theory, people start having high expectations of it. The same happened with microcredits.

But what are microcredits exactly?

Basically, microcredits are small loans given to poor people to start their own small business.
You can find a short video explaining microfinance here: How does Microfinance work?

The idea came from Muhammad Yunus, winner of the Nobel Peace Prize in 2006.

The idea sounds good, is this maybe the magic pill our world was looking for?


Cynthia Kinnan, Abhijit Bannerjee, Esther Duflo and Rachel Glennerster propose to use randomized controlled trial techniques, which is same approach that is used to test new medication, so they can compare a group of people who used such a loan to a group of people under identical conditions who did not use a microcredit. The resulting data could deliver the needed evidence.The findings were published in April 2013 in a report you can find here: Report from April 2013 .To summarize the report very shortly, microcredits does not “paint a picture of dramatic changes in basic development outcomes for poor families,” according to Kinnan. The results maybe will disappoint some people, but the truth is that most things just need their time. And the test was “only” carried out for three years. As Abhijit Bannerjee said: “Poverty has been with us for thousands of years. If we have to wait another 50 to 100 to eradicate it, so be it.”


One comment

  1. natestnwsk · · Reply

    wow… very revealing post!
    It’s interesting to learn how Yunus came to start his Grameen Bank.
    I read earlier on that despite a lot of criticism due to corruption affaires the microfinance system would work really well because the borrowers, mostly women, only can borrow as a group of people. Thus, there’s peer pressure to pay back the loans and as a result the repayment rate of the Grameen Bank is surprisingly high. Find this, too, an interesting aspect.
    Well done 🙂 Nate

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