Introduction

The impact of various monetary shocks on the poor can be catastrophic

- concern: mircrocredit leads to distress and poverty

Background Information

Microcredit provides the poor with a way to access a large sum of money in a short time

period.

- microcredit in theory should lead to:

- increased investments in existing and new businesses

- we present a summary of the results of 7 studies in all 7 locations all around in the

world whose results are quite similar, showing they can be extrapolated to the state

of microcredit on the whole and not symptomatic of specific locations they were

held in.

Evidence

Household consumption is unaffected: Among the 7 studies, 4 examined the effects of

offering microcredit on household consumption. The results are shown in the graph below

as the percentage change in consumption of the group that received microcredit compared

to the control group. The absolute treatment effect is smaller than 5% in 3 of the 4 studies

and in all cases, the error in the measurement is as large as or larger than the treatment

effect. This suggests that access to microcredit on average does not lead to either positive

or negative effects on household consumption, assuaging the worry that microcredit

necessarily leads to greater poverty.

Graph 1: Percentage change in household consumption of the treatment group compared to the control group

Mental well-being is on average unaffected or improved: Two of the seven studies examined

the change in mental health indices, shown in the graph below as the percentage change in

the specified index in the treatment group compared to the control group. The study in the

Philippines indicated a 5.6% decrease in overall well-being, while the study in Mexico

showed a 4.6% increase in mental well-being. However, both results have high errors

associated with them, rendering them statistically insignificant. The variability in the results,

small treatment effects and high errors point to the fact that microcredit does not have an

overall effect on the mental well-being and stress levels of recipients.

 Graph 2: Percentage change in mental health indices of the treatment group compared to the control group

Business profits remain the same: While existing businesses increased their investments, this

did not lead to increased business profits on average, as shown in the graph below. In 4 of

the studies that examined this metric, the treatment effect was smaller than 30%, with

large associated errors. Only the study conducted in Ethiopia showed substantial increases

in business profits, but also with large standard error, suggesting that microcredit might be

beneficial to a certain population of existing business owners. However, the average

business owner did not see a statistically significant increase in profits.

Graph 3: Percentage change in business profits of the treatment group compared to the control group
Offering longer payment grace periods can lead to increased business profits: In a study that

examined the effects of offering customers a two-month long grace period before the first

loan re-payment, a noticeable positive impact on the business profit was shown. However,

there was also a statistically significant increase in the default rate.

These results suggest that potential entrepreneurs are more willing to take risks when they

are allowed more time for their business ideas to come to fruition.

Conclusion and Recommendations

- don’t go eradicate microcredit, it really isnt that harmful. it’s is helpful to specific

individuals, but has no average effect. let it be, maybe push for a change in the way

it is implemented.