Microcredit in Cambodia: Why is There So Much Support for a Failed Poverty Reduction Model? ; ISEAS Perspective ; ISSUE: 2020 No. 134
The microcredit model is a financial innovation that, since the 1980s, has been very widely promoted in the Global South to combat poverty, joblessness, inequality and gender disempowerment. In microcredit, tiny loans or 'microloans' are used to establish or expand an informal microenterprise or self-employment venture. There was much initial optimism from practitioners in the field and the idea seemed to be very solidly backed by rafts of impact evaluations (see Odell, 2010). Economic studies by high-profile economists (for example, see Beck, Demirgüç-Kunt, and Levine, 2007) also sagely pronounced that microcredit was a really efficient way to address poverty. By the mid-2000s Bernd Balkenhol, Head of the ILO's Social Finance Program, felt able to report that the microcredit model was now very widely accepted as "the strategy for poverty reduction par excellence" (Balkenhol, 2006, 2 - underlining in the original). However, more recently, researchers digging deeper into the evidence of a positive impact from microcredit have found that a large part of the supporting evidence relied on simplistic 'before and after' impact evaluations that ignored important wider downside factors and externalities, and so inevitably distorted the results to the upside (Duvendack et al., 2011).