This review revisits the evidence of microfinance evaluations focusing on the technical challenges of conducting rigorous microfinance impact evaluations.
This study assesses the validity of available evaluations by focusing on the intervention, the measurement of outcomes and contextual factors likely to affect differences in outcomes in different contexts. In addition, it also considers different categories of persons and the potential existence (as well as the possible significance) of factors, which might confound observed relationships to undermine claims of a causal relationship with microfinance. It searched 11 academic databases, 4 microfinance aggregator and 8 non-governmental (NGO) or aid organisation websites. Researchers also consulted bibliographies of reviewed books, journal articles, PhDs and grey literature. These results were further screened and prioritised. Most of the conclusions were drawn from 2 randomised-control trials (RCTs) and 9 pipeline designs.
Key Findings:
- Most of the effects of microfinance which were assessed occur in the early stages of the causal chain, with both positive and negative outcomes. The bulk of estimates reported were statistically insignificant even at the beginning of the causal chain, and a significant number of estimates suggest negative outcomes throughout the causal chain. These findings are consistent with at least some of the qualitative literature (e.g. Fernando 1997).
- The majority of microfinances IEs included investigate group lending and credit only interventions which do not reflect the diversity of the sector, nor allow a conclusion as to the impact of the microfinance sector as a whole. Individual lending is a more recent phenomenon that has not yet been evaluated widely. Paired with doubts about research designs and analytical methods used by various microfinance IEs, we can neither support nor deny the notion that microfinance is pro-poor and pro-women.
- The study finds no robust evidence of positive impacts on women’s status or girl’s enrolments. This may be partly due to these topics not being addressed in valid studies (RCTs and pipelines).
- Almost all impact evaluations of microfinance suffer from weak methodologies and inadequate data. Thus, the reliability of impact estimates are adversely affected. This can lead to misconceptions about the actual effects of a microfinance programme, thereby diverting attention from the search for perhaps more pro-poor interventions.
Recommendations:
- It is of interest to the development community to engage with evaluation techniques and to understand their limitations, so that more reliable evidence of impact can be provided in order to lead to better outcomes for the poor.
- There are many other candidate sectors for development activity which may have been relatively disadvantaged by ill-founded enthusiasm for microfinance.
