Microfinance programs and institutions are increasingly important in development strategies but knowledge about their impacts is partial and contested. This paper reviews the methodological options for the impact assessment (IA) of microfinance. Following a discussion of the varying objectives of IA it examines the choice of conceptual frameworks and presents three paradigms of impact assessment: the scientic method, the humanities tradition and participatory learning and action (PLA).
Key issues and lessons in the practice of microfinance IAs are then explored and it is argued that the central issue in IA design is how to combine different methodological approaches so that a “fit” is achieved between IA objectives, program context and the constraints of IA costs, human resources and timing. The conclusion argues for a greater focus on internal impact monitoring by microfinance institutions.
Keywords: methods, microfinance, credit, impact assessment, monitoring and evaluation, poverty reduction
In recent years impact assessment has become an increasingly important aspect of development activity as agencies, and particularly aid donors, have sought to ensure that funds are well spent. As microfinance programs and institutions have become an important component of strategies to reduce poverty or promote micro and small enterprise development then the spotlight has begun to focus on them. But knowledge about the achievements of such initiatives remains only partial and is contested. At one end of the spectrum are studies arguing that microfnance has very beneficial economic and social impacts (Holcombe, 1995; Hossain, 1988; Khandker, 1998; Otero & Rhyne, 1994; Remenyi, 1991; Schuler, Hashemi & Riley, 1997). At the other are writers who caution against such optimism and point to the negative impacts that microfinance can have (Adams & von Pischke, 1992; Buckley, 1997; Montgomery, 1996; Rogaly, 1996; Wood & Sharrif, 1997). In the “middle” is work that identifies beneficial impacts but argues that microfinance does not assist the poorest, as is so often claimed (Hulme & Mosley, 1996; Mosely & Hulme, 1998).
Given this state of affairs the assessment of microfinance programs remains an important field for researchers, policy-makers and development practitioners. This paper reviews the methodological options for assessing the impacts of such programs drawing on writings on microfinance and the broader literature on evaluation and impact assessment. Subsequently it explores ways in which impact assessment practice might be improved. It views impact assessment (IA) as being “…as much an art as a science…” (a phrase lifted from Little, 1997, p. 2). Enhancing the contribution that impact assessment can make to developmental goals requires both better science and better art. The scientific improvements relate to improving standards of measurement, sampling and analytical technique. Econometricians and statisticians are particularly concerned with this field. Improving the “art” of impact assessment has at least three strands. One concerns making more systematic and informed judgements about the overall design of IAs in relation to their costs, specific objectives and contexts. The second is about what mixes of impact assessment methods are most appropriate for any given study. The third relates to increasing our understanding of the ways in which the results of IA studies influence policymakers and microfinance institution (MFI) managers.
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