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Which Anti-Poverty Policies Work?

In fighting poverty, we should be skeptical of silver bullets and ensure that every policy, however well intentioned, receives deep scrutiny. That rules out some of the most hyped measures, including most microcredit schemes and debt waivers.

VIJAYAWADA, INDIA – Some policies seem so altruistic that it is almost impossible to imagine any objection to them. For example, lending small amounts of money or writing off debts to help the extreme poor are intended to help the most vulnerable, and both approaches seem entirely sensible. However, scrutiny reveals these well-intentioned policies to be misguided.

Around a decade ago, NGOs, international organizations, and philanthropists trumpeted microcredit as a silver bullet that would end extreme poverty. The United Nations designated 2005 as the International Year of Microcredit, and when the Nobel Peace Prize was awarded to Muhammad Yunus and Grameen Bank the following year, the Nobel committee declared microcredit “an ever more important instrument in the fight against poverty.” The humanitarian pop star Bono went further: “Give a man a fish, he’ll eat for a day. Give a woman microcredit, she, her husband, her children, and her extended family will eat for a lifetime.”

Unfortunately, evidence carefully collected over many years shows that there is no such thing as a silver bullet for poverty – and certainly no such thing as a cheap, easy policy that can feed an entire family for a lifetime. A series of trials has underscored the importance of microcredit program design, and, in many cases, these schemes simply don’t do much good in eradicating poverty. Seldom have they been found to increase average incomes by very much. Worse, they run the risk of burdening the poor with additional debt.

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