Six practitioner networks published a statement last week in an effort to counteract negative publicity arising from recent randomized trials of the impact of microcredit.  These studies failed to find evidence that microcredit was producing gains in household income or consumption, at least over the short term.

Much of the networks’ statement was reasonable, but I thought it failed to hold water on a few key points, which have been ably analyzed in posts by David Roodman of CGD  and Sushmita Meka of IFMR.

I’d add one other critique.  The statement argues that the recent randomized trials “are part of a much larger body of research conducted over the last 20 years that have explored how microfinance affects the lives and well-being of clients….” The implication is that the earlier research (which produced more encouraging findings about microcredit impact) counterbalances the less optimistic findings of the recent randomized trials.  But it doesn’t seem quite even-handed to trot out the former impact studies without mentioning the recent analysis by Roodman and Morduch that invalidates the most prominent and widely-relied-upon of those studies.

Unitus seems to have taken the lead in the issuance of the statement.  Brigit Helms, (a good friend and respected colleague of mine, and more to the point, CEO of Unitus) reinforced the message of the MFIs’ statement in an op-ed piece for the Seattle Times.

Brigit says,

“Having worked in international development for 28 years, I have seen thousands of women like Kanti Yadav, a single mother who was able to take a loan from Unitus partner Mimo Microfinance in Dehradun, India, to start a tailoring business that supplements the small amount she makes selling plastic bangles. With the 50 percent increase in income, Kanti was able to take control of her household finances and send her kids to school for the first time. The positive impact a microfinance program has had on her family is undeniable.”

While Brigit’s anecdote is compelling, I doubt that she has sufficient information on thousands of women to make reliable (let alone “undeniable”) inferences about the impact of microcredit in their lives. Among other things, such inferences would require knowledge of counterfactuals—what would have happened without the microloan. For instance, many studies, including those recently reported in Portfolios of the Poor, strongly suggest that many of the microborrowers may have had alternative sources of finance available to them.  Or perhaps Brigit meant “undeniable” to refer only to the single women she mentions, in which case the anecdote is no more relevant to the discussion than an isolated anecdote of someone experiencing a bad result would be.

I agree with Brigit and the six MFI networks that there are other important benefits from microcredit that were not tested by the recent randomized trials. In a recent CGAP paper I articulated a similar list of effects that can help people cope with poverty.  These benefits—for instance maintaining stable consumption in the face of irregular and vulnerable income–seem to me to make sustainably delivered microcredit an attractive development initiative even if bobody yet knows whether the loans are raising people above the poverty line. (“Consumption smoothing” doesn’t sound very exciting to most of us, mainly because our own basic consumption needs are seldom if ever threatened.  Poor people have quite a different view.)

But let’s be straightforward here.  The main value proposition put forward on behalf of microcredit for the last quarter century is that is helps lift people out of poverty by raising incomes and consumption, not just smoothing them. At the moment, we don’t have very strong evidence that this particular proposition is true, and I don’t think we should be putting out public relations material that fudges the issue or suggests that we do have such evidence.