Does microfinance work? A survey of research so far…

A superb literature survey on the state of microfinance. Five economists write this survey – Jonathan Bauchet, Cristobal Marshall, Laura Starita, Jeanette Thomas and Anna Yalouris.

The survey is mainly of random evaluation experiments done around the world in various fields of microfinance- credit, savings, insurance etc. They also look at whether specific design features like community lending, preference to women works or not.

This paper summarizes the latest research findings from a new body of empirical evidence that uses randomized evaluations, similar to those used in medical trials, to compare how one group responds to access to specific new financial services against how a comparable group fares without  those services. (See Box 2.) This paper goes back a couple of years to the first studies that used this approach, and summarizes a series of research studies presented at the October 2010 Microfinance Impact and Innovation Conference in New York. These studies evaluated product design for a range of financial services, including credit, savings, and insurance. The studies discussed here were undertaken by research affiliates of Innovations for Poverty Action (IPA), the Financial Access Initiative (FAI), and the Abdul Latif Jameel Poverty Action Lab (J-PAL) at the Massachusetts Institute of Technology; they are all randomized evaluations unless otherwise specified. 

Part 1 of this paper reviews the main results from randomized evaluations that measure the impact of microcredit and  microsavings on business investment and creation, consumption, and household  well-being. Part 2 presents evidence from evaluations of products and delivery design. Part 3 discusses the evidence on microinsurance products.

The scope of the study is pretty vast and difficult to discuss all the broad lessons from the several studies in several sub-fields. So leaving the different findings to the reader.

Overall the lessons are that context matters and what works somewhere may not work elsewhere. That is precisely the challenge behind these experiments is to take some common lessons and scale them upwards by applying them elsewhere. Another important thing is design of the program matters:

The overall message from this body of work is that poor people face various limits, and their ability to capitalize on opportunities varies greatly. One of the next steps is to find simple ways to identify those differences and cater to them with the right products delivered with the right design. Details matter. Purpose does as well—not all borrowers want to grow a business. The variable results seen can be as much a function of borrower intent as borrower ability. A one-size-fits-all product will not bring benefit to the borrowers or profit to the providers. 

Instead, the microfinance industry needs to continue to mature in ways that allow it to view poor customers as individuals. Some of those individuals will leverage financial services to smooth consumption; some to manage risk; some to make investments they have the skill and resources to profit from; some will do all of the above. With a view of serving all of these needs, microfinance providers may evolve a new generation of improved services and products that reliably and flexibly help poor people.

Not much difference from lessons ones draws from development literature.

A superb survey and really well written minus all the jargon. A very rich reference list at the end as well..

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One Response to “Does microfinance work? A survey of research so far…”

  1. Veerapatheeran Says:

    Excel sheet plan, Power point presentation making good sense to see MFI growth. Ultimately we are making poor to poorest 70% out of 100%. Because no one teaching “How to fishing” everyone trying to cheat poor people only. This is my strong experience in 12 years gross root work.

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