Friday, August 11, 2006

Tyler Cowen on microfinance in India

Tyler Cowen's NYTimes column opens with:

Microfinance is based on a simple idea: banks, finance companies, and charities lend small sums — often no more than a few hundred dollars — to poor third world entrepreneurs. The loan recipients open businesses like tailoring shops or small grocery stores, thereby bolstering local economies.

But does microfinance, in fact, help the poor?

To help answer this question, I visited Hyderabad, India, in June. The Poverty Action Lab at the Massachusetts Institute of Technology, run by Abhijit Banerjee and Esther Duflo, economics professors at M.I.T., and Sendhil Mullainathan, an economics professor at Harvard, has begun a study of microfinance in Hyderabad. The lab is monitoring thousands of borrowers from Spandana, one of the largest microlenders in India. At the end of a two-year trial period, the study will compare microfinance recipients to peers without comparable opportunities. The lab looks for the real-world equivalent of controlled experiments to study which programs actually alleviate poverty; this work is one of the hottest trends in the economics profession today.

Here are the homepages of Sendhil Mullainathan, Abhijit Banerjee and Esther Duflo. And, the website of the Poverty Action Lab is here.