Comments on: Microfinance: Damned with faint praise? http://chrisblattman.com/2009/08/13/damning-microfinance-with-faint-praise/ Research, international development, foreign policy, and violent conflict Mon, 15 Mar 2010 16:56:46 +0000 http://wordpress.org/?v=2.9.1 hourly 1 By: Charity for dummies? « Aid Thoughts http://chrisblattman.com/2009/08/13/damning-microfinance-with-faint-praise/comment-page-1/#comment-6307 Charity for dummies? « Aid Thoughts Wed, 26 Aug 2009 15:50:18 +0000 http://chrisblattman.com/?p=3090#comment-6307 [...] inconclusive (although, to be fair, there are no magic bulles). Chris Blattman has a good summary here. David Roodman has an entire blog dedicated to the ongoing debate. Sponsor a girl abroad through [...] [...] inconclusive (although, to be fair, there are no magic bulles). Chris Blattman has a good summary here. David Roodman has an entire blog dedicated to the ongoing debate. Sponsor a girl abroad through [...]

]]> By: MicroFinance as development strategy | Development Shift http://chrisblattman.com/2009/08/13/damning-microfinance-with-faint-praise/comment-page-1/#comment-5991 MicroFinance as development strategy | Development Shift Mon, 17 Aug 2009 11:56:51 +0000 http://chrisblattman.com/?p=3090#comment-5991 [...] and MicroLend are actively discussed see Microfinance: Damned with faint praise? on Chris Blattman’s blog or David Roodman’s Microfinance Open Book Blog on [...] [...] and MicroLend are actively discussed see Microfinance: Damned with faint praise? on Chris Blattman’s blog or David Roodman’s Microfinance Open Book Blog on [...]

]]> By: The Question of Small Loans | Rachel Laudan http://chrisblattman.com/2009/08/13/damning-microfinance-with-faint-praise/comment-page-1/#comment-5915 The Question of Small Loans | Rachel Laudan Fri, 14 Aug 2009 14:15:51 +0000 http://chrisblattman.com/?p=3090#comment-5915 [...] damming microfinance with faint praise from a blog by Chris Blattman that is always interesting. Share and [...] [...] damming microfinance with faint praise from a blog by Chris Blattman that is always interesting. Share and [...]

]]> By: Richard H. Serlin http://chrisblattman.com/2009/08/13/damning-microfinance-with-faint-praise/comment-page-1/#comment-5904 Richard H. Serlin Fri, 14 Aug 2009 04:05:05 +0000 http://chrisblattman.com/?p=3090#comment-5904 "If we run 100 regressions, 10 are going to show up as significant at the 10 percent level, especially as we delve into subgroups. Dean and Jonathan account for this, and do much better than 1 in 10 in their results. This uncertainty, however, is the big argument for more replication. Theirs is just one data point (and fortunately we can look forward to several more in the next few years)." This is not really true. One regression is not just one data point. The "one regression" may include thousands of pieces of data, even millions. Suppose you run one regression that includes a million individuals and find the results will only occur just by pure random chance only one time in one trillion -- and the results are also very economically significant -- and the underlying assumptions of the regression are very reasonable. It's not true that that's weak evidence because it's just one regression. “If we run 100 regressions, 10 are going to show up as significant at the 10 percent level, especially as we delve into subgroups. Dean and Jonathan account for this, and do much better than 1 in 10 in their results. This uncertainty, however, is the big argument for more replication. Theirs is just one data point (and fortunately we can look forward to several more in the next few years).”

This is not really true. One regression is not just one data point. The “one regression” may include thousands of pieces of data, even millions. Suppose you run one regression that includes a million individuals and find the results will only occur just by pure random chance only one time in one trillion — and the results are also very economically significant — and the underlying assumptions of the regression are very reasonable. It’s not true that that’s weak evidence because it’s just one regression.

]]> By: A link to the past « Aid Thoughts http://chrisblattman.com/2009/08/13/damning-microfinance-with-faint-praise/comment-page-1/#comment-5899 A link to the past « Aid Thoughts Thu, 13 Aug 2009 23:23:00 +0000 http://chrisblattman.com/?p=3090#comment-5899 [...] Wait, microfinance isn’t the holy grail of development? [...] [...] Wait, microfinance isn’t the holy grail of development? [...]

]]> By: D. Watson http://chrisblattman.com/2009/08/13/damning-microfinance-with-faint-praise/comment-page-1/#comment-5893 D. Watson Thu, 13 Aug 2009 17:55:13 +0000 http://chrisblattman.com/?p=3090#comment-5893 Other papers providing experimental evidence on microlending's effects: Experimental Evidence on Returns to Capital and Access to Finance in Mexico David McKenzie, and Christopher Woodruff# April 4, 2007 Expanding Microenterprise Credit Access: Using Randomized Supply Decisions to Estimate the Impacts in Manila* Dean Karlan Jonathan Zinman Other papers providing experimental evidence on microlending’s effects:

Experimental Evidence on Returns to Capital and Access to Finance in Mexico
David McKenzie, and Christopher Woodruff#
April 4, 2007

Expanding Microenterprise Credit Access:
Using Randomized Supply Decisions to Estimate the Impacts in Manila*
Dean Karlan Jonathan Zinman

]]> By: David Roodman http://chrisblattman.com/2009/08/13/damning-microfinance-with-faint-praise/comment-page-1/#comment-5891 David Roodman Thu, 13 Aug 2009 11:05:11 +0000 http://chrisblattman.com/?p=3090#comment-5891 Hi Chris. I agree generally with the tenor but would add a few important caveats. First, as I note in my own <a href="http://blogs.cgdev.org/open_book/2009/07/the-other-shoe-drops-2nd-randomized-microcredit-study.php" rel="nofollow">post</a> about the study, the sample has an average income of about $15,000/year and is more educated than the United States. There is not much poverty to be eliminated. To an extent, high incomes are inherent in Karlan and Zinman's approach of introducing randomness into credit scoring, a filtering technique that is uneconomical for the truly poor who must be lent to through groups (to be economical). Average income in K&Z's related South Africa study was ~$8,000/year, I think. I did not notice any adjustment for "multiple hypothesis testing," so it seemed to me that some of their significant results were attributable to chance. But of course statistically insignificant results are still scientifically significant, which is the point of your post; lack of significance is not a criticism. The JPAL study of microcredit in Hyderabad gets much more to people living on $1/day (my review <a href="http://blogs.cgdev.org/open_book/2009/05/first-randomized-trial-of-microcredit.php" rel="nofollow">here</a>). ~15 months on, it finds effects on business formation and profits but none on bottom-line indicators such as income, consumption, and health. Also worth noting is the new Dupas and Robinson impact study of micro<em>savings</em>, which finds benefits for women in Kenya. (My review <a href="http://blogs.cgdev.org/open_book/2009/07/first-randomized-trial-of-microsavings.php" rel="nofollow">here</a>.) Bigger caveat: microcredit, microfinance more generally, can help the poor even if it does not increase average incomes. It can help them smooth their typically volatile incomes and deal with crises against which they lack insurance. This can give them more control over their circumstances, which fits Amartya Sen's definition of "development as freedom." This is why in my book and blog I am looking at microfinance through multiple perspectives. Microfinance probably does not live up to the mythology about microenterprise as a ladder out of poverty. But perhaps some forms of it are doing respectably by the standards of foreign aid (public and private)? Hi Chris. I agree generally with the tenor but would add a few important caveats. First, as I note in my own post about the study, the sample has an average income of about $15,000/year and is more educated than the United States. There is not much poverty to be eliminated. To an extent, high incomes are inherent in Karlan and Zinman’s approach of introducing randomness into credit scoring, a filtering technique that is uneconomical for the truly poor who must be lent to through groups (to be economical). Average income in K&Z’s related South Africa study was ~$8,000/year, I think.

I did not notice any adjustment for “multiple hypothesis testing,” so it seemed to me that some of their significant results were attributable to chance. But of course statistically insignificant results are still scientifically significant, which is the point of your post; lack of significance is not a criticism.

The JPAL study of microcredit in Hyderabad gets much more to people living on $1/day (my review here). ~15 months on, it finds effects on business formation and profits but none on bottom-line indicators such as income, consumption, and health.

Also worth noting is the new Dupas and Robinson impact study of microsavings, which finds benefits for women in Kenya. (My review here.)

Bigger caveat: microcredit, microfinance more generally, can help the poor even if it does not increase average incomes. It can help them smooth their typically volatile incomes and deal with crises against which they lack insurance. This can give them more control over their circumstances, which fits Amartya Sen’s definition of “development as freedom.” This is why in my book and blog I am looking at microfinance through multiple perspectives. Microfinance probably does not live up to the mythology about microenterprise as a ladder out of poverty. But perhaps some forms of it are doing respectably by the standards of foreign aid (public and private)?

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