Chapter 10: Microfinance: Assessing its Impact on Microenterprises
Gwendolyn Tedeschi INTRODUCTION Although there is widespread belief among donors and microfinance practitioners that access to credit is helpful, proving such an impact statistically has been elusive. This chapter outlines the potential impact of credit on the enterprise through a survey of recent literature and a review of effective methodologies in assessing impact. The major impediments to finding statistically significant results and self-selection bias are fully explained, and different methods that have been used to mitigate the bias are explored. Finally, this chapter examines a panel data set from a microfinance institution in Peru that offered statistically and economically significant results. After controlling for self-selection through a fixed effects methodology, we find that access to credit leads to higher levels of microenterprise profits, gross revenues, days worked, and fixed assets, not only for the primary enterprise, but often for additional microenterprises run by the household. THE POTENTIAL FOR IMPACT From 1995 to 2001, the US Agency for International Development sponsored a project called Assessing the Impact of Microenterprise Services, or AIMS. One of its earliest studies outlined potential areas for improvement to individuals, the households they belong to, the enterprises that they run, as well as the communities in which they work (Sebstad et al., 1995). This framework identified key variables for the microenterprise that should be positively impacted by microfinance services, including indicators of financial performance (gross revenue and profit), resource base (labor usage and fixed assets), production processes, management, and access to markets. Past studies on microenterprise profits...
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