What’s the News: Making loans to small business owners in developing countries has quite the positive reputation. It has given people in poverty, especially women, a chance to bootstrap themselves up the economic ladder despite having marginal or no credit history and little work experience, as people have used the tiny loans to start businesses, purchase herds of animals, or invest in improvements to their shops or inventory. The Nobel Peace Prize was awarded to the economists who developed the practice in the 1970s at Bangladesh’s Grameen Bank.

But does microcredit really pay off? In a study published today in Science, economists have taken a rigorous look at it and concluded that in many or its modern implementations, it’s not having the touted benefits.

What’s the Context:

The problem with studying the effects of microcredit is that there tend to be a lot of factors at play in addition to the money. Lenders might provide counseling to business owners—as part of a broader category of services called microfinance—or decide to give credit to only those they think most likely to succeed. This makes it hard to tell whether the money, all on its own, can have ...