I posted a while ago about making a micro loan via Kiva.com. Doing this has been very educational for me. It has helped me understand what microloans really do and what the misconception is. I have received a few repayments already, in fact, I have over half the loan amount repaid. I have to be honest, it has not been as fun or exciting to have this loan out as I thought. The web site is great and I even found a nice Windows Phone 7 app that helps me monitor and track my account. I was really hoping to get feedback from the person I loaned the money to but I have not heard anything.
During the time of having the loan out I was more attune with things I saw and heard about microfinance. I listen to a podcast called EconTalk which is a great educational podcast on economics. There was a recent podcast about microfinance that was interesting. The research currently doesn’t show that microfinance has any impact on lifting people out of poverty.
“However, there are surprisingly few credible estimates of the extent to which microcredit actually reduces poverty.”
“The most-cited source of evidence on the impacts of microfinance is the early set of studies collected by David Hulme and Paul Mosley (1996). The findings of these studies are provocative: poor households do not benefit from microfinance; it is only non-poor borrowers (with incomes above poverty lines) who can do well with microfinance and enjoy sizable positive impacts. More troubling is the finding that a vast majority of those with starting incomes below the poverty line actually ended up with less incremental income after getting micro-loans, as compared to a control group which did not get such loans.”
This is interesting because people have called microfinance the cure to poverty. As in most problems in life, poverty is more complex than peoples access to money. Economics is not a very perspicuous issue. I am not saying it is an activity we should not engage in, and I am not ready to pull my money from Kiva yet. Microfinance may be a tool in helping but it alone cannot solve poverty. While the industry of microfinance may not be able to cure poverty it has at least helped us understand poverty a little better, and that helps us better understand the issue.
