Microcredit: Impacts and promising innovations

Findings on the impacts of microcredit continue to evolve. Early evidence from randomized evaluations in low- and middleincome countries showed that the classic microcredit model did not lead to transformative impacts on income or consumption for the average borrower across many contexts. However, a subset of high-potential entrepreneurs saw high returns to microcredit. More recent research similarly finds that certain groups like experienced business owners can have high returns to credit, and the benefits of microcredit can extend to nonborrowers. Evaluations of innovations to microcredit products, such as targeting high-potential entrepreneurs or providing flexible repayment options, led to higher business and household outcomes and show promise for financial service providers looking to reduce poverty through credit. Moreover, adjusting the mode of loan disbursement can crucially increase women’s control of capital.