One question has dogged “microfinance” since the term entered the philanthropic vocabulary: Does this endeavor to alleviate poverty in countries around the world work?
Grameen Foundation, a U.S.-based nonprofit organization, released a report on Thursday, June 10, that reviews recent studies on the effectiveness of microfinance in alleviating poverty. The new report, Measuring the Impact of Microfinance: Taking Another Look, was written by Kathleen Odell, who teaches economics at Dominican University’s Brennan School of Business. It is an update of one the foundation commissioned in 2005 that reviewed nearly 100 studies conducted between 1970 and 2005 measuring the effect of microfinance.
In the original report, Measuring the Impact of Microfinance: Taking Stock of What We Know, Nathanael Goldberg wrote that a wide range of evidence showed that microfinance programs can increase incomes and lift families out of poverty. “Yet it would be imprudent to issue a blanket statement that ‘microfinance works,’ for the simple reason that there is no one ‘microfinance’ to test,” he wrote. The programs he looked at served different types of clients with a variety of services and operated in widely varying regions.
Goldberg noted that the evidence he had examined pointed in two directions: On the one hand, there was much to be enthusiastic about; on the other hand, much remained to be discovered about the sundry ways microfinance works, and does not work, for different types of clients.
In her updated report, Odell writes that several things became clear in her attempt to pull together evidence from recent research into the effectiveness of microfinance. A number of studies, using various methodologies and from different settings, suggest that microfinance is good for microbusinesses, with increases in business ownership, investment and profits. “Importantly, this result holds for microsavings as well as microcredit. Microsavings in particular appears to be a promising financial instrument whose potential is only beginning to be discovered.”