Passage A:

For the rural poor of the developing world, the binding constraint on enterprise has long been not a shortage of ideas but a shortage of capital. Formal banks, unable to assess the creditworthiness of clients who lack collateral and documented income, simply decline to lend; the informal moneylender fills the vacuum at ruinous rates. Microfinance was designed to break this impasse. By lending small sums to borrowers organized into groups whose members jointly guarantee repayment, microlenders substitute social collateral for the physical kind, harnessing the borrowers' own knowledge of one another to screen risk and enforce repayment. The results, measured against the counterfactual of no credit at all, are substantial. Repayment rates rival those of conventional banks. Households gain a buffer against the shocks - a failed harvest, a medical emergency - that would otherwise force the sale of productive assets. And because a disproportionate share of loans flows to women, microcredit shifts resources toward the household members most likely to invest in children's schooling and nutrition. Critics who fault microfinance for failing to lift whole villages out of poverty demand of it something it was never meant to deliver. It is a tool of consumption-smoothing and modest self-employment, not a substitute for industrial development. Judged by that realistic standard - the standard of what the poor could otherwise obtain - it has enlarged the choices available to millions who had, before its arrival, no formal access to credit whatever. To withhold the instrument because it is not a panacea is to let the perfect defeat the good.

Passage B:

Enthusiasm for microfinance has outrun the evidence for it. When the impact of expanded microcredit access is measured not against the borrower's imagination but against controlled comparison, the celebrated transformations largely vanish. Randomized evaluations across several countries converge on a sober finding: new access to microloans produces no detectable average gain in household income, consumption, or the schooling of children, and no measurable shift in the autonomy of women borrowers. Some households do start or expand tiny businesses; few of these enterprises grow, hire, or outlast the loan. Meanwhile the group-lending model that its champions celebrate exacts a cost they seldom count. The joint-liability contract that disciplines repayment also enlists neighbors as collection agents, converting the borrower's community into an instrument of pressure; the weekly meeting that supposedly builds solidarity can, when a harvest fails, become an engine of shame and even coercion. Nor is the high repayment rate the triumph it is advertised to be: borrowers routinely service one loan by taking another, and a rate sustained by refinancing measures the lender's discipline, not the borrower's prosperity. None of this is to deny that credit can help; it is to deny that the particular architecture of microfinance reliably does. The deeper error is one of attribution - crediting to a clever contract the resilience that poor households, pooling risk as they always have, would have shown in any case. Before an instrument is scaled to hundreds of millions, the burden lies on its advocates to show that it does more good than the alternatives it displaces.