Through the Thicket of Credit Impact Assessments

Abstract

The remarkable growth in microlending during the past four decades has been accompanied by numerous credit impact assessments that initially reported microloans were quite effective in alleviating poverty.² More recently, however, a variety of studies have reported increasingly mixed results, ranging from showing loans to be highly successful in alleviating poverty, to credit being somewhat successful in this regard, to credit having little impact on poverty, to claims that more credit may even be making borrowers worse off. An explanation for these diverse results might be found in the problems involved in documenting credit impact. In Section 2, we briefly summarize the findings of numerous impact assessments. Section 3 discusses the major problems faced by those doing these evaluations. In Section 4, we offer our explanations for the widely diverse results that are being reported. Section 5 suggests that many features of credit impact may be immeasurable, that consumers’ actions may be the best indication of the benefits they realize from borrowing, and goes on to propose an alternative method to assess the impact that focuses on jobs creation. Placing more emphasis on jobs might, in turn, require the microfinance industry to rethink its concerns about mission drift and graduation of successful borrowers, and instead capitalize on its opportunities to go up-market and support small enterprises that grow and hire more people. Section 6 provides conclusions.

We benefited from valuable comments by R. Meyer, E. Nelson and R. Rosenberg.