Wednesday, October 27, 2010

Microcredit will it work in the long run?

In India, people in the slums that had access to microcredit were more likely to cut down on things like tobacco and alcohol in favour of durable goods (particularly items such as pushcarts or cooking pans that are used heavily by traders and food-stall owners

From a recent article in the Economist describing two new studies of microcredit that used randomized experiments to test for impacts of microcredit. In the short run consumption does not seem to go up and poverty does not seem to go down with microcredit. The possible good news that one article finds is that more durable goods are purchased particularly those that are small business related.

I worry though if too many people start buying pans and carts to sell food that the gains from selling food on the street will be really small. For example see Alex Tabarokk's discussion of his recent trip to El Salvador about "a pueblo with about 8 or 9 pupuserías in direct competition." How much money can be made in a village with several pupusa vendors.

Both analyses discussed in the article plan to continue to follow the groups they are studying so perhaps long term influences will start to become clearer.
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