Impact Evaluation for Microfinance: Review of Methodological Issues

This paper discusses the evaluation of microfinance impacts and policies, including program evaluation and policy evaluations. The paper:

• Reviews experimental and quasi-experimental evaluation methodologies in urban and rural environments;
• Discusses key results from past studies;
• Studies common indicators of impact and sources of data;
• Concludes with a discussion of impact issues that are yet to be adequately addressed.

The paper argues against the opinion that evaluation of MFIs is unwarranted because they are for-profit institutions, and proposes the following four reasons why MFIs should evaluate impact:

• An impact evaluation is akin to good market and client research. By learning more about the impact on clients, an MFI can design better products and processes;
• Even financially self-sufficient financial institutions often receive indirect subsidies in the form of soft loans or free technical assistance. It is reasonable to ask whether these subsidies are justified relative to the next best alternative use of these public funds;
• Impact evaluations do not simply measure the positive effect of a given program on participants, they also provide important information to practitioners about the types of products and services that work best for particular types of clients;
• While many microfinance programs aim to be for-profit entities, not all are. Many are non-profit organizations, and some are government-owned. There is a need to learn how alternative governance structures influence the impact on clients.