Also — the borrowers have a very high rate of payback (i’ve certainly gotten paid back fine through several, including one where there was huge political volatility in Kenya, the pay back was just delayed a bit).

So.. i’m still interested in whether Kiva’s clients fare better than the average small businessperson in these countries, and assume that at some point someone will publish data on this..

thx much-
XTG

@Brian Too, actually, that’s not a hole in the study–that’s a feature. Microfinance, as stated above, is different from microcredit, which is often a component of microfinance. This study wanted to see if *just the money* would make a difference. Turns out, that doesn’t seem to be enough.

Basically, the idea is, if we’re going to keep using this as a development strategy, it seems prudent to figure out what situations do and don’t work.

Since these are very small and relatively unsophisticated business owners, sometimes it is as simple as “I will buy a sewing machine with this money and sell the production to X”.

Therefore, where is the oversight that allowed “…the money was often used to deal with unexpected expenses…” to happen? This makes me think that there was no guidance and assistance to keep the business plan on track.

In a larger sense, this would be recipe for drift and loss of focus in almost any business, practically anywhere in the world.

Also, one of the benefits of micro-credit, as it was originally envisioned, was that it was a communal practice that had a very low default rate. The loans were only made to GROUPS of women, so there was a social support (and pressure) network in place to be sure that the loans got paid back. The default rate was very low, so an interest rate of only a few percent should have allowed for a break-even rate overall.

Where do I sign up?

So sad really. Some things never change.

Interesting points, though…

-XTG

I believe another term used for someone who loans money with a 60% (or higher) interest rate is “loan shark”.

Disgraceful.

I appeal to whoever has a copy of the original study to publish it in public for discussion.

thank you

Does microlending really work? Every year billions of dollars are ploughed into this sort of lending, and part of that is supplied through aid money, from donor governments. But is it money well spent?

Dean Karlan, professor of economics at Yale University, has studied how it works – and made the study rigorous by comparing groups with a control group in the Philippines.

A control group is a group identical to the one being observed except that it doesn’t have what is being tested for.

As Professor Karlan told Lesley Curwen, the results raised serious questions about the effectiveness of microcredit in reducing poverty

On the other hand, I couldnt find any good study that proves otherwise. So, it could very well be true that the overall result of micro-credit is not significant, but this study does not prove that.

Salim