Abstract
How robust is the evidence that microcredit works? Theory on microfinance initiatives has moved far ahead of evidence, and success stories remain unsubstantiated. Lack of convergence in findings together with the contexts in which impact studies have been conducted, render the interpretation and generalization of findings intricate. Consequently, thirty years into the growth of microfinance industry there is scant evidence that microfinance improves the lives of clients in measurable ways. This paper reviews methodological and data constraints in microfinance impact assessments. The study builds on earlier work and considers recent research on microfinance initiatives in order to isolate some emerging contestable issues. JEL classification: G21;C52;C81 Keywords: Microfinance; Impact; Methodologies; Evaluation; Data DOI: 10.7176/JESD/11-22-09 Publication date: November 30 th 2020
Highlights
Microfinance has been regarded as an effective policy tool in the fight against poverty
As MFIs innovate in products and programs at a rapid pace, it’s important for policymakers and practitioners to understand the relative impact of different mechanisms, on the borrowers
The study has observed that cross sectional methodology does not measure the impact of a microcredit program satisfactorily
Summary
Microfinance has been regarded as an effective policy tool in the fight against poverty. Difference-in-differences (DID) approach controls for self-selection and non-random program placement bias due to variables that do not change over time. Researchers must carefully choose between fixed-effects and random-effects regression when analyzing panel data and use relevant tests to examine whether modelling heterogeneity improves model fit.
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