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Taking Stock of the Evidence on Microfinancial Interventions

Taking Stock of the Evidence on Microfinancial Interventions

(p.189) 5 Taking Stock of the Evidence on Microfinancial Interventions
The Economics of Poverty Traps
Francisco J. BueraJoseph P. KaboskiYongseok Shin
University of Chicago Press

Microfinancial interventions are designed as responses to poverty traps, where the poor cannot invest because they lack wealth, but poverty persists without investment. Interventions include microcredit programs, asset grants to micro-entrepreneurs, and small asset transfers to the very poor. We review the empirical evidence on such interventions, and assess our ability to account for this evidence using quantitative theory. At least three general lessons arise consistently. First, no policies produce large scale miracle escapes from poverty traps, that is, none has been shown to lead to permanent increases in income or consumption well beyond poverty levels nor to extended and sizable increases in the rate of growth of income, consumption, and capital that predict such escapes. Second, take-up rates for microcredit are typically low, while those of asset transfer programs are much higher. Third, heterogeneous responses to policies are evident in almost all studies, where impacts vary by initial wealth, size of intervention, gender, ability, entrepreneurial status, financial access, and time frame.

Keywords:   microfinance, asset grant, entrepreneurship, poverty trap

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