Developing Stories

Facebook Twitter Social Media

Microfinance Now: Dean Karlan

Dean Karlan, Professor of Economics at Yale University, discusses the way in which the practice of microfinance is evolving as more and more is learned about the needs and uses of financial services by low income and poor individuals and households. “It’s a shockingly simple point,” says Karlan, but microfinance practices are only now catching up with the huge range of needs people have due to individual and household circumstances, and because needs vary at different stages in people’s lives. Karlan’s own research has explored the use of “nudges,” and here he uses the example of commitment savings to illlustrate how carefully designed products can help people make good choices to achieve better outcomes. Karlan also talks about the importance of empirical evidence when judging the outcomes of financial services, and makes the case for using randomized trials similar to those used in medical trials to ensure a precise understanding of causality and attribution in development interventions. Yet surprisingly, perhaps, Karlan argues that randomized trials should not be done everywhere. We need to be careful, he says, to ensure that the appropriate research tool is used to answer the right question. There are many other questions that are not about impact, but address other important questions such as accountability and targeting, and we should not assume that randomized evaluations apply to all research questions that will make a project successful.

facebook tweet linkedin email