There is a substantial body of research that shows non-profit micro-finance works. It'e the for profit micro-finance that does not work. The two things are absolutely separate, and this badly designed studies conflates them.

Non-profit microfinance already has a great trackrecord. It targets women because women are more likely to reinvest the money and use it for business. The men are more likely to be caught in corruption, or use it for themselves.

WHy is it one moonbat study gets all of the attention, when there are pounds in any academic database that are opposite?

There is a substantial body of research that shows non-profit micro-finance works. It'e the for profit micro-finance that does not work. The two things are absolutely separate, and this badly designed studies conflates them.

Off the cuff, the study is titled "Microfinance as Business," which suggests that it's regarding for-profit enterprise.

Andrew, thanks for your enjoyable thought piece on our "Microfinance as Business" report for the Center for Global Development. I have two responses, one narrow, one general.

What's the difference between cows and calves? Suppose I offer you a loan to buy a couple of shares in an electric company. You earn dividends and pay interest to me. Will this transform your life? Will it even improve it much? Probably not. That's what buying a grown cow would look like to a microcredit borrower. The price of the cow would reflect the value of the milk she will immediately give, so there won't be much profit margin.

But if the woman buys a calf, then she can put her time into raising it, time that she might not otherwise put to commercial use, especially in places such as rural Bangladesh where women are largely cut off from the market and other public spaces. Or she will multitask, looking after the cow, the kids, and the household all at once. So

calf + sweat equity = cow.

If we resuscitate ninth grade algebra from the deep recesses of our minds and apply it here, we get the one true formula for the difference between a cow and a calf:

cow - calf = sweat equity.

Now a larger point about the impact of microcredit on borrwers. I'm not arguing here with what you wrote, just elaborating on how I think about the impact of microfinance. The Nobel Prize for Muhammad Yunus and Grameen Bank adds to what was already a lot of hype about microcredit. Microcredit appeals the left as being about empowerment of women and to the right as being about enterprise and self-reliance. Measured against the hopes that are often pinned on it, it is doomed to fall short. BUT if we put aside the hype, and think about financial services as analogous to education, health, roads, telephones, etc.--things we want everyone to gain access to as part of economic development--then I think we can form a more realistic picture of microcredit. In financial services, as elsewhere, it is hard for well-intended outsiders, from the World Bank to the Gates Foundation to Pierre Omidyar, to come in and improve things. It is by no means impossible. But typically the contributions of do-gooders are incremental.

What I worry about with microcredit is what I worry about with all credit when it is pushed hard by the supplier. Think of the third world debt crisis, or the trouble that some people get into with credit cards and adjustable-rate mortgages. For some, debt becomes a debt trap. That doesn't mean we should ban credit cards or ARMs. Credit is extremely useful. It makes *my* life better. But the dangers of credit should remind us of the need deploy it with care when targeting poor people, with clear and watchful eyes. It is an empirical question whether, in any given place, it is helping people on average. The available evidence suggests that microfinance sometimes doesn't help people and sometimes does. It does not appear, on average, to transform lives, to end poverty.

One thing I like about microcredit is that the leading institutions are substantially self-sufficient. As organizations, they are quite remarkable, employing hundreds or thousands of people at tasks most thought impossible. They operate in difficult circumstances and are relatively accountable to their clients. They are what Bill Easterly calls "searchers." They enrich the institutional fabric of their nations. So even if microcredit does not live up to the hype, if we judge it against modest, realistic expectations (which Easterly implores us to do), it may not be doing so badly.

The crux for me is that western economists refuse to see the woman with a cow as a business. So she doesn't represent measurable economic development. Doesn't contribute to the export economy. Doesn't boost high tech competitiveness.

In fact, the woman is an entrepreneur, a small dairy business owner. Her success or failure depends on her smarts and her hard work just like a business anywhere. Contrast this to the traditional vision of economic development, which would probably look something like a local factory owner expanding and hiring more wage laborers at 50 cents an hour. Those workers have little chance to improve their lives, even if they work hard, and they have jobs as long as they make the factory owner more money. This is viewed as measurable, laudable economic development.

And what's this nonsense about peer pressure? Somehow the existence of some village peer pressure to repay a loan, so that more villagers can participate, creates a higher "burden of evidence" that lives are improved. Huh? Are they suggesting a woman would rather escape peer pressure than have a new cow? That peer pressure is too onerous a condition of a loan? I'd like to see a local US businessman stand up and swear before the whole community that he will repay his business loan!

Does microcredit work for individual people? I think the impossible "global-end-of-poverty" style measures by which economists judge microcredit by are the problem.

This is simpler: Before loan: woman has no cow and no debt and no credit history. After loan is paid: woman has a cow and no debt and a clean credit history. She is a proud business owner! That is a success.