My priors on microfinance:
- Its availability has probably made targeted populations better off, and is probably doing no harm otherwise, on average.
- It is probably difficult to attract financial capital to many of the areas targeted by microfinance nonprofit organizations, so there probably is not much crowding out of private investment.
- There is probably some desirable crowding out to the extent microfinance is a substitute for other forms of foreign aid we know are less effective.
- The returns to microfinance probably would not outweigh other reforms like trade liberalization, particularly in agriculture and immigration.
As a further question, in what ways is microfinance substantively different from payday lenders in the United States? Payday lending functionally seems to serve as high interest small loans to people with low incomes and poor/no credit history. Note that I see this as a favorable comparison to both microfinance and payday lenders. Empirical work on payday lenders is probably better than that of microfinance, so I would like it if I could make a plausible case for external validity.
There we go, I would appreciate it if you helped me update my prior with thoughts, counterpoints, and suggested readings.
