Microfinance seems like a boost for entrepreneurs in developing countries: Give them little loans, and people can make their small businesses a bit larger. Starting in 2001, the government of Thailand used this idea as the basis of a program called the Thai Million Baht Village Fund, which distributed loans in 77,000 rural villages.The program was simple, providing a million baht (the Thai currency), or about $24,000, to create banks in each of those villages. But the outcome of the program was complex, as MIT economist Robert Townsend outlines in a newly published paper. In areas where loans were disbursed, consumption grew, income for those in agriculture and other forms of business grew, and wages grew for laborers — all signs of economic growth — but overall asset growth in the villages decreased.“The flow of funds from savings to investment...
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