Chapter 4: What do we really know about microfinance impact?
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Microfinance (MF) has been long heralded as a silver bullet to alleviate poverty and empower women. It enables the poor to access low cost credit, from which they were previously excluded, to undertake profitable entrepreneurialism. However, the impact of MF has become a highly contested arena, with critical (often systematic) reviews tending to controvert earlier claims that there existed good evidence of highly beneficent impacts (for example Bateman, 2010; Roy, 2010; Stewart et al., 2010; Duvendack et al., 2011; Roodman, 2012). Until the late 1990s most of the evidence was based on either practitioner contracted qualitative evaluations and commentaries (for example Counts, 1996; Todd, 1996), or a few quantitative studies that did not adequately control for selection bias (for example Gaile and Foster, 1996; Sebstad and Chen, 1996). A widely acknowledged notable exception was the complex analysis of a quasi-experimental design by Pitt and Khandker (1998) which became known as the most convincing evidence in favour of the headline claims for MF. Confidence in the likely positive impacts of MF was boosted by theoretical model based “typical findings” derived from empirical studies; these models purported to explain the causal mechanisms embedded in the innovative practices of microfinance institutions (MFIs) which enabled them to reach the poor and maintain financial viability (for example Varian, 1990; Besley and Coate, 1995). If it is the case that this combination of qualitative and quantitative studies backed up by convincing theoretical modelling was misleading, a better understanding of how best to measure MF impact is warranted to assess the quality and rigour of the empirical evidence to date. This chapter begins with a chronological overview of the key microfinance impact evidence with a focus on the methodological approaches adopted and how these evolved over time. Next, MF-specific evaluation challenges are discussed and linked to the recent methodological debates on experimental versus quasi-experimental studies. Finally, this chapter concludes with reflections on what we may have learnt from the discourse on MF impact.

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