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What is the evidence of the impact
of microfinance on the well-being of
poor people?

Maren Duvendack, Richard Palmer-Jones, James G Copestake, Lee Hooper, Yoon Loke, Nitya Rao

August 2011

London: EPPI-Centre, Social Science Research Unit, Institute of Education, University of London.

A new systematic review of the evidence on microfinance, published last week, is dynamite for the world’s most popular development policy. Madeleine Bunting of the Guardian has already referred to it as “microfinance’s sober reckoning”, likening the findings to a “hangover after a big party”. Bangladeshi news calls it a “damning report”.

Being co-published by the UK Department for International Development (DFID), previously a strong microfinance supporter, this “study of studies” comes from deep within the policy community – a first for a truly critical study of microfinance. The authors (economists and medical researchers mainly based at the University of East Anglia) looked at thousands of existing studies on microfinance. Their conclusions are anything but minced words:

Our report shows that almost all impact evaluations of microfinance suffer from weak methodologies and
inadequate data, thus adversely affecting the reliability of impact estimates. Nevertheless authors often draw strong policy conclusions generally supportive of microfinance. This may have lead to misconceptions about the actual effects of programmes, thereby diverting attention from the search for perhaps more pro-poor interventions and more robust evaluations. (from the Policy Brief)

So, after 30-odd years and $ hundreds of billions of lending, there still is no proof that microfinance actually works. Read the rest of this entry »