Spanning the chasm: uniting theory and empirics in microfinance research

Unifying theory and research to contribute to poverty reduction This paper argues that with the development and increasing use of randomized experiments in development research, we now have a unique opportunity to bridge the gap between these two strands of research, the need to use existing theories to make sense of the experimental evidence, and in turn, to use experimental evidence to refine existing theories and suggest new ones. This discussion is essential to what is believed as the next step in the research agenda: using theory (existing or new) explicitly to design future experiments and using the results from these experiments to refine and extend our theoretical understanding. This paper reviews some of the recent theoretical developments in the field focusing on these alternative features and discusses their potential interactions. It also discusses issues such as group formation where important, long-standing theories still call for empirical support.