Microfinance Impact Evaluation: A Managerial Perspective

This concept note discusses the importance of impact evaluation (IE) in microfinance.

Impact evaluation has been a popular method for assessing various policy, project and program level interventions. The note states that:

• Microfinance IEs mostly use randomized control trials (RCTs);
• RCT is a fairly good methodology of assessment but has limitations such as selection bias, contagion effect and contamination effect;
• Measuring the impact of microfinance has become very important due to recent changes in the regulatory environment of Indian MFIs and their vulnerability to political risk;
• Very few MFIs track their social impact;
• Rigorous IE benefits the MFI through customer insights, product and process improvements, performance measurement and better reporting standards;
• Challenges that MFIs face in IE include lack of expertise, lack of focus and lack of resources.

The note predicts that IE will become more important as various stakeholders shift their focus towards social performance and understanding consumer behavior. IE will not only be a strategic exercise but will be adopted as a risk mitigation tool to identify loopholes and appropriate measures to plug them.