[p2p-research] The failure of micro-credit?

Samuel Rose samuel.rose at gmail.com
Mon Aug 24 17:41:50 CEST 2009

On Mon, Aug 24, 2009 at 10:59 AM, Ryan Lanham<rlanham1963 at gmail.com> wrote:
> Sam,
> If you hear of such an investment plan offered by anyone, I'd like to check
> it out.
> I agree with your points totally.  The Yale study has left me shaken a bit
> though.  They were not unclear as to their conclusions.  I believe these
> things help real people which is my own big motivator.  If I don't get the
> moral sense of helping and contributing, I might as well go plunder.  If
> that makes me "compensated" then so be it.

The conclusion of the Yale paper states:

"Microcredit seeks to promote business growth and improve well-being
by expanding access to
credit. We use a field experiment and follow-up survey to measure
impacts of a credit
expansion for microentrepreneurs in Manila. The effects are diffuse,
heterogeneous, and
surprising. Although there is some evidence that profits increase, the
mechanism seems to be
that businesses shrink by shedding unproductive workers. Overall,
borrowing households
substitute away from labor (in both family and outside businesses),
and into education. We also
find substitution away from formal insurance, along with increases in
access to informal risk-
sharing mechanisms. Our treatment effects are stronger for groups that
are not typically
targeted by microlenders: male and higher-income entrepreneurs. In
all, our results suggest that
microcredit works broadly through risk management and investment at
the household level,
rather than directly through the targeted businesses."

There are some unseen affects by re-applying the same microlending
pattern over and over everywhere (targeting businesses etc).
Microlending could probably work well if it were adjusted to what
different cultures and people are saying they need. I could see a
whole different set of effects emerging in a place like Tonga, for
instance, which has a different culture and different economies of
sharing, etc.

Helping people improve their lives beyond poverty conditions looks
like it really depends heavily on what the people you are helping
define as "improvement" for themselves.

> I can now imagine the down a doctor would have after prescribing something
> that seems to help for years only to have a scientist publish a paper saying
> it was detrimental.
> If it is wrong in not being as good as other solutions, we need to speed
> those other solutions to deployment.
> I never think of taking back my money that I lend.  My own goal is to keep
> piling up more lending to help more people.  I'm sure there are those who do
> it as a business, but frankly, buying a bond is less risky and probably
> returns as much or more given currency losses, etc.  Most bankers don't
> think of Bangladesh, Mexico or Tanzania as first line risks. I can attest
> the returns are not superior.
> Ryan
Sam Rose
Social Synergy
Tel:+1(517) 639-1552
Cel: +1-(517)-974-6451
skype: samuelrose
email: samuel.rose at gmail.com

"The universe is not required to be in perfect harmony with human
ambition." - Carl Sagan

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