Publication Details
What do we know about poverty impacts of microfinance?
a meta-analysis
Miguel Niño-Zarazúa
2010
Abstract
It is now widely understood that credit markets ration loans to those in poverty. Moral hazard and adverse selection raise the need for physical collateral, which is coupled with high transaction costs associated with small size loans. These informational constraints have limited the ability of institutional lenders to reach the poor. Microfinance emerged in the late 1970s as a promising set of screening incentive and enforcement devices that enable lenders to increase credit access to those excluded from institutional financing.
During the late 1980s and 1990s, governments and NGOS in the developing world began to introduce microfinance programmes with financial and technical support from multilaterals, bilaterals, and international microfinance networks. With aid flows, impact studies were in the rise, and by late 1990s, a significant number of studies had been conducted with some evidence pointing at positive impacts while others, at insignificant effects. Despite the fact many of these studies, if not all, have been questioned on the grounds of sampling and statistical reliability, they helped to boost the microfinance sector up to the current point, estimated at almost 3500 microfinance organisations worldwide.
Whether and to what extent microfinance reduce poverty remains a subject of intense debate. In the late 2000s, more advance methodological approaches, notably randomised experimental trials were adopted to assess poverty impacts of microfinance with most evidence suggesting insignificant effects. This paper contributes to the existing literature on microfinance in three important ways: first, it presents a review of the state of knowledge on poverty impacts of microfinance with a particular focus on extreme poverty. Second, it conducts a fixed-effect meta-regression analysis to identify a measure of poverty effect size rather than the conventional statistical significance of individual studies. Third, the study allows measuring the variance (or degree of bias) between results from non-experimental and experimental studies, and provides information on the `true’ impact of microfinance on poverty.
Publication Type(s)
Conference Paper
Ten Years of War Against Poverty Conference Papers
Conference: Ten Years of War Against Poverty