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Saturday, 3rd February 2007

Evaluating the Impact of Microfinance

Evaluating the Impact of Microfinance
Source: Center for Global Development

n December, Muhammad Yunus and the Grameen Bank he founded received the Nobel Peace Prize for their pioneering contributions to the development of microfinance. There are many stories of the transformative effect of microfinance on individual borrowers but until recently there has been surprisingly little rigorous research that attempts to isolate the impact of microfinance from other factors, or to identify how different approaches to microfinance change outcomes.

Six new working papers by CGD non-resident fellow Dean Karlan and his co-authors are helping to fill this gap by applying the highest scientific standards to the study of microfinance. Understanding how microfinance affects clients is not straightforward because there are several possible explanations for why, say, a borrower is doing well compared to her non-borrowing peers. The credit might be helping--or perhaps the borrower was already comparatively prosperous and would have fared as well even without the loan. These new papers elucidate cause and effect by performing controlled experiments, in which a few parameters are randomly varied and the effects measured. The result is sharper answers, in specific contexts, to questions such as: How sensitive are potential borrowers to high interest rates? At the margin, does access to credit increase incomes? Does it empower women? In the solidarity group lending method made famous by the Grameen Bank, wherein small groups of borrowers guarantee each other’s loans, is that mutual guarantee really the essential glue that holds the system together?

+ Credit Elasticities in Less-Developed Economies: Implications for Microcredit
+ Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts
+ Female Empowerment: Impact of a Commitment Savings Product in the Philippines
+ Group Versus Individual Liability: A Field Experiment in the Philippines
+ Observing Unobservables: Identifying Information Asymmetries with a Consumer Credit Field Report
+ Teaching Entrepreneurship: Impact of Business Training on Microfinance Clients and Institutions

See also: Microfinance as Business - Working Paper 101


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