Impact of Micro-Credit on Selected Household Welfare Attributes: Evidence from Sri Lanka

This paper examines the impact of microcredit on some selected household welfare attributes, i.e. household income, assets, expenditure, housing conditions and employment, based on a national-level household survey on microfinance in Sri Lanka. The paper finds that:

• Overall, microcredit has enabled the households to improve their income, assets, housing conditions, etc.;
• However, the magnitude of impact varies across different income groups;
• Microcredit has largely helped the middle and higher income quintiles to increase their level of income, assets and housing;
• There is no significant impact on these attributes for the poorest quintile;
• For the poorest households, the impact of microcredit is mainly on their consumption level.

The paper concludes that:

• Microcredit has supported various employment generating activities among the clients;
• However, many businesses that have started under microcredit programs are either micro-enterprises or small-scale self employment activities that use little or no technology and skills;
• The demand for credit by the poorest groups is largely for emergency credit to support consumption and reduce vulnerability to various risks;
• However, most of the existing microcredit programs have not adequately addressed the issue of servicing the demands for financial services emanating from the poorest groups;
• It is important to consider the differences among microcredit clients in different income groups and their needs in designing more effective financial instruments.