High Noon for Microfinance Impact Evaluations: Re-investigating the Evidence from Bangladesh

This paper re-examines evidence from a study on the impact of microfinance conducted by Pitt and Khandker (PnK) in 1988.

The PnK study examined the impact of three microfinance programs in Bangladesh and is considered as the most authoritative microfinance impact evaluation. The PnK study states that microfinance enables the poor to access credit, provides them access to remunerative activities and relieves them of debts. It also supports microfinance’s targeting of women on the grounds that they perform better as MFIs' clients, compared to men. Detractors, however, argue that there is little convincing evidence that microfinance programs have positive impacts.

The current study applies propensity score matching (PSM) to the PnK evidence. It reconstructs data and differentiates outcomes by gender of borrower, taking into account borrowing from several formal and informal sources. Findings include:

• Microfinance participation has significant impacts that are not distinguishable from those of other sources of finance;
• Sensitivity analysis shows that positive impacts of microfinance are vulnerable to selection of unobservables;
• There is no causal relationship between microfinance and outcomes.