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Does Microfinance Impact Poverty?

There have been a lot of studies conducted on the impact that microfinance is having on reducing poverty. Recently, Grameen Foundation USA commissioned Nathanael Goldberg to research all of the relevant studies on microfinance in an objective manner. The summary of his research is published in a free report called Measuring the Impact of Microfinance: Taking Stock of What We Know.

Goldberg does a good job of summarizing the highlights of many impact studies so even though this is still a long read (56 pages), it focuses our attention on the core findings. He covers the criticisms of various studies and doesn’t shy away from the contradictions between studies or the negative or inconclusive results. The reality is that measuring impact on poverty – especially long-term, sustainable impact – is a very challenging research task. It is very difficult to carefully select a good control group to which you are comparing and to isolate the impact of microfinance itself (vs. other factors) on poverty reduction.

Here are a few highlights:

  • Two

    major studies strongly suggest that microfinance works better for the poorest than the less poor. Other studies don’t find this distinction.

  • There is strong evidence that female clients are empowered, though the data on increased adoption of family planning is less clear.
  • Quite consistently loans provided to women (rather than men) have a significantly greater impact on poverty reduction. Often loans given to men do not help with poverty reduction.
  • Even in cases where poverty reduction is not observed, having loans helps to smooth cash flow enabling improvements in quality of life (e.g. year round money to buy food.)
  • There are many indications that poverty reduction goes beyond the borrower families to the larger community … that is, there are secondary local, positive impacts on poverty reduction in the immediate village/area.

Goldberg’s Net: There is a wide range of evidence that microfinance programs can increase incomes and lift families out of poverty. Access to microfinance can improve children’s nutrition and increase their school enrollment rates, among many other outcomes.

Category: Payday loans

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