When we compared the households in these two sets of neighborhoods, some fifteen to eighteen months after Spandana started lending, there was clear evidence that microfinance was working. People in the Spandana neighborhoods were more likely to have started a business and more likely to have purchased large durable goods, such as bicycles, refrigerators, or televisions. Households that did not start a new business were consuming more in these neighborhoods, but those who had started a new business were actually consuming less, tightening their belts to make the most of the new opportunity. There was no clear evidence of the reckless spending that some observers feared would happen. In fact, we saw exactly the opposite; households started spending less money on what they themselves saw as small “wasteful” expenditures such as tea and snacks, perhaps a sign that, as Padmaja has predicted, they now had a better sense of where they were heading. On the other hand, there was no sign of a radical transformation. We found no evidence that women were feeling more empowered, at least along measurable dimensions. They were not, for example, exercising greater control over how the household spent its money. Nor did we see any differences in spending on education or health, or in the probability that kids would be enrolled in private schools. And even when there was detectable impact, such as in the case of new businesses, the effect was not dramatic. The fraction of families that started a new business over the fifteen-month period went up from about 5 percent to just over 7 percent—not nothing, but hardly a revolution. As economists, we were quite pleased with these results: The main objective of microfinance seemed to have been achieved. It was not miraculous, but it was working. There needed to be more studies to make sure that this was not some fluke, and it would be important to see how things panned out in the long run, but so far, so good. In our minds, microcredit has earned its rightful place as one of the key instruments in the fight against poverty.
Nothing that interesting for me to mention in this passage other than how it summarizes how microcredit can be an effective tool in combating poverty.
Contrary to intuition though, giving more credit/money to these people actually reduced their overall spending on “wasteful” expenditures. It is 1 example that goes against the common intuition that giving poor people money is wasteful as they will be lazy and spend it all on alcohol and snacks.
Rather, the key factor is whether they have something to look forward to in the future. That is also why I believe in direct cash transfers programs such as GiveDirectly. Money is more than just money. It provides them a form of stability and a better vision of the future. By solving whatever urgent pressing need they have (leaky roof, lack of clean water, proper walls), they will be have a much better base to work towards a better future.
