Does Microfinance Have an Impact?

As microfinance practitioners, we have witnessed the positive impact of microfinance first-hand. For the last four decades, our work has regularly brought us face-to-face with clients-the majority of them women-in more than 40 countries across five continents.

For these clients, business loans from microfinance institutions open a world of opportunity previously closed to them by the formal financial sector. Loans enable them to buy tools and materials to start an incomegenerating business and/or to increase the productivity of an existing business. Increased income generated from these businesses allows them to pay school fees to  educate their children, stabilize food sources, and pay for other expenses that lead to the improvement of the health and well-being of their families.

Savings accounts-equally critical financial tools-facilitate the safe accumulation of assets, while microinsurance reduces their vulnerability to risk. In aggregate, these services help the poor improve their lives and begin to work their way out of poverty.

We have also seen through our work that microfinance is particularly able to empower women, giving them access to the material, human and social resources necessary to make strategic choices in their lives: establishing or strengthening financial independence; transforming power relationships; improving stability and family prospects by directing more income toward families; and, particularly, engendering dignity and pride. This economic independence often translates into more productive communities.

The media’s interpretations of several recent studies on the impact of microfinance, however, have questioned whether microfinance has made a quantitative improvement in the lives of borrowers, or has had any effect on poverty alleviation on a systemic basis. We refer specifically to research authored by Yale’s Dean Karlan and Dartmouth’s Jonathan Zinman, who examined microfinance in the Philippines, and that of Abhijit Banerjee, Esther Duflo and others of MIT’s Jameel Poverty Action Lab, who studied microentrepreneurs in Hyderabad, India.

It is important to note two things about these studies: first, that the researchers in question have disputed some of the media’s interpretations of their studies as flawed; and second, that these studies, conducted over a short timeframe and with small sample sizes, are part of a much larger body of research conducted over the last 20 years that have explored how microfinance affects the lives and well-being of clients.

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