Impact of Microfinance on Poverty Alleviation: What Does Emerging Evidence Indicate?

This paper examines the importance of impact studies in analyzing the impact of microfinance on the poor. It describes two kinds of impact studies and their results. It highlights various gaps that still exist in the area of impact studies in microfinance.

The paper states that there are two kinds of studies that evaluate the impact of microfinance, namely, impact-led studies and insurance-led studies. Investment-led studies present mixed results of the impact of credit on various indicators affecting household welfare. Insurance-led studies suggest that poor households generally use a combination of savings, credit, and increased wage employment to cope with income volatility and unexpected expenditure requirements. Gaps in impact studies include:

• Most credit programs studied are actually hybrids that bundle credit with other services and it is difficult to disentangle credit impact from overall impact;
• Many microfinance programs induce empowerment at the community level by enabling collective action and by setting the foundation for sustainable community-based organizations;
• Impact evaluation needs to account for these types of benefits;
• Many impact studies fail to reveal the exact processes by which poverty is affected;
• Impact- studies suffer from methodological issues, such as the difficulty of obtaining a comparable control group.