Development economists studying microfinance, the practice of extending small loans to entrepreneurs excluded from conventional banking, initially celebrated the model for enabling borrowers, many of them women running small trading or craft businesses, to expand operations that collateral requirements at conventional banks would otherwise have foreclosed. Randomized evaluations conducted in the following decade complicated the celebratory account by finding that the average borrowing household saw no significant increase in income or consumption attributable to microloans, though a small subset of borrowers with existing business experience showed substantial gains.

One response to this finding holds that microfinance was oversold as a broad poverty-reduction tool when its genuine value lies in a narrower function: providing working capital to already-viable small enterprises whose growth was constrained specifically by a lack of access to credit, rather than by a lack of skills, market demand, or other binding constraints. On this view, the modest average effect reflects the fact that most borrowers were never credit-constrained in the relevant sense to begin with, so a loan simply added debt without addressing whatever constraint was actually limiting their business.

A second response accepts the narrower-value framing but adds a further qualification: even among borrowers who were genuinely credit-constrained, a single loan cycle may be too short a window to detect income gains, since business expansion, hiring, and market development often take several loan cycles to materialize, meaning some of the null results in shorter evaluation windows may understate microfinance's effect on the specific subgroup for whom the underlying credit-constraint theory should apply.