The evidence on the impact of cash transfers is far stronger than that for micro-loans, whose impacts have generally been below expectations. We think that micro-loans are likely beneficial for the poor, but given the evidence, see no reason to incur the added costs of administering them.

We suspect that the disappointing track record of micro-loans may have to do with their structure. These loans often bear high interest rates, reflecting the high costs of administering and monitoring them, which in turn limit their benefit to borrowers.

They also tend to have short-term structures and require borrowers to begin making repayments shortly after borrowing.

These features make micro-loans less useful for financing the kinds of long-term investments (e.g. education or durable goods) that recipients often make with grants.

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