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New Research Indicates Microloans Don’t Solve Poverty

In this Feb. 28, 2011, photo, police detain women activists protesting against alleged harassments by microfinance companies in Hyderabad, India
In this Feb. 28, 2011, photo, police detain women activists protesting against alleged harassments by microfinance companies in Hyderabad, IndiaPhotograph by Mahesh Kumar A./AP Photo

Here’s the main argument for microfinance: Making small loans to poor women in developing countries will help them start businesses and escape poverty.

A new, rigorous analysis of microfinance in India suggests its real effects are much murkier. NPR’s Caitlin Kenney points to a working paper by development economists at the Massachusetts Institute of Technology. Led by Esther Duflo, they attempt to study the effects of microfinance with randomized control trials, the same way medical researchers test whether a new drug works better than a placebo. The paper claims to be the longest evaluation of microlending.