Micro-Loans Don't Solve Poverty | Hacker News Reader

Micro-Loans Don't Solve Poverty

fivethirtyeight.com

39 pointsJacobAldridge20 comments

> The fact that they would reach these conclusions that I personally know to be false really discredits them in my eyes

That's a weird thing to say when you should beleive at least in the scientific process.

> Rupert Scofield, who runs FINCA, one of the largest and most prominent microlenders, said randomized controlled trials work well in medicine but don’t make sense in evaluating development aid. He said that for years, his response to claims like Duflo’s was to say he didn’t need data when he could see the effect firsthand.

It sounds like he is suffering cognitive dissonance. He believes in RCTs and he believes in microlending. To resolve the conflict, he rationalizes first that RCTs "don't make sense" in the microlending world. Next he decides that researchers themselves aren't credible as good researchers would not reach a "false" conclusion.

I agree with this perspective but why doesn't he ask for additional research to be done. If he's belief is valid based on what he sees, then maybe six is too small a sample size.

Now I'm confused because FINCA themselves launch studies to understand their impact. Shouldn't they be countering data-based arguments with data-based arguments?

From the article they link to FINCA's own internally developed study [1] which at first glance seems to have reasonable metrics [2]. Why not use those to assess whether you believe independent research methods and data were properly developed and analyzed?

As a side note, I like how AQR handles similar criticisms and releases Cliff's Perspectives [3] which use data and logic to evaluate arguments for or against their own or competitive portfolio strategies.

[1] http://www.finca.org/files/2015/06/FINCA-MasterCard-From-Int...

[2] http://imgur.com/eaUGNCH

[3] https://www.aqr.com/cliffs-perspective

There's nothing wrong with this one line from a "scientific process" perspective.

I saw a reference once to a "theorem" of economics which states that it isn't possible for coins and bills of the same denomination to coexist; one will drive the other out of circulation. I was highly disturbed by this, because in China 1元 coins and 1元 bills are both very common, and in fact it's not at all unusual, when receiving change, to get some of each. What conclusions do you think I was warranted in drawing?

I think you're referring to Gresham's law (https://en.wikipedia.org/wiki/Gresham%27s_law ); but it doesn't talk of coins and bills.

It does, if you consider that bills are always fiat money, and coins could be precious metals. (But nowadays never are ... Because of Gresham's law)

And specifically not in the case of China. So the answer of OP's "What conclusions do you think I was warranted in drawing?" is exactly the expected one: "That you haven't understood well what they're saying."

Tell you what. I'm prepared to believe that the person who I was reading (not me) was referring in a confused way to Gresham's Law, if you can point me to someone describing it as a "theorem" rather than as "Gresham's Law".

If you're open to accepting that writer was confused about the meaning, why not about the name too?

"He said that for years, his response to claims like Duflo’s was to say he didn’t need data when he could see the effect firsthand."

Why would people give their charity money to someone who is so clearly blinkered?

Here's another critical perspective on microloans:

A local “demand constraint” underlies two of the main shortcomings associated with microcredit: displacement and exit. Displacement occurs when new jobs and incomes registered in one microcredit-supported enterprise are cancelled out by the decline in jobs and incomes in incumbent competitor microenterprises. Exit is the process whereby both new and existing microenterprises are forced to close, due to the additional supply of informal microenterprises operating in the same sector.

Nonetheless, these obvious shortcomings also help explain why, as even longstanding supporters now acknowledge, there is no empirical evidence showing microcredit cuts poverty. As a rule, it simply boosts the rate of informal microenterprise entry, which is then followed by an equally high rate of displacement and exit, creating nothing more than an unproductive and wasteful local dynamic known as “churn” or “turbulence.”

Source: https://www.jacobinmag.com/2015/11/microcredit-muhammad-yunu...

Micro-loans have always been on par with loan sharks, the interest rates are similar. (Loan sharks don't pay tax, don't have to pay foreign wages)

So, I can see why there is no real reason they will work. Most people can access loan sharks.

Places that run micro-loans might be nicer but they are not introducing an amazing new opportunity.

While pricing might be similar to loan sharks, they don't cut off your fingers.

I would like to add that maybe the problem are not the [micro|macro]-loans, but people. Loans are basic bricks for an economic development in any society. Sadly, they can't save a bad business from failure.

So my point is that maybe a poor borrower investing in a bad business will end up poorer. Other scenario, mentioned in the article, are poor people lending money for non productive expenses.

A basic financial advice applies here: Invest in a productive business and try not to borrow money for non productive expenses.

I think you basically reiterate the point here: if you are in poverty, you don't have enough money for basic necessities (read: non-productive expenses); therefore, you can choose to spend any extra money on those necessities, or go without.

In other words, microloans don't solve poverty.

I like the thoughts here on micro vs macro finance in the developing world: https://www.ted.com/talks/sangu_delle_in_praise_of_macro_yes...

i.e. maybe less gofundme and more kickstarter/angelist can have an impact.

Cites specific research that supports their belief. Does not cite any of the research that suggests microloans do in fact work.

And anyway, if they successfully make a business out of making loans to people that would otherwise not have access to loans, while not negatively impacting those people: good for them.

My problem with microloams is that they seem rife with dishonesty somewhere between propaganda bullshit and fraud. claims high repayment and "choose who you lend to", but semisecretly distributes money through local loan sharks who charge high interest.

More evidence that poverty is a symptom, not the disease.

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