IMPACT EVALUATION OF MICROFINANCE AND ITS GLOBAL SIGNIFICANCE

IMPACT EVALUATION OF MICROFINANCE AND ITS GLOBAL SIGNIFICANCE

1. Small Loans: Certainly microfinance is not microfinance unless loans remain under a certain manageable size, but how small is best for serving the dual needs of the client and the institution? What number of different loan products maximizes impact before becoming unmanageable for the institution and confusing for the client? What other products, such as savings and insurance can be effective complements or substitutes for loans?
2. Collateral-free Loans: To what extent do collateral requirements or collateral substitutes discourage the poor from participating in MFIs, and to what extent do they raise repayment rates? How effective are collateral substitutes compared to traditional collateral?

• Loans for Entrepreneurial Activity: Is this essential for maintaining repayment and ensuring impact on the household? The poor face a variety of credit needs and allowing them to use credit for any type of expenditure could serve them best. Or, loosening the requirement could encourage further indebtedness without a means of escape. To what extent do business skills training help clients manage their enterprises and bolster repayment rates? Why do so many micro-entrepreneurs seem to stagnate at a certain business size, and what can be done to help them expand, employ others, and open additional locations?

1. Group Lending: Recent evidence from Nigeria and other countries has raised questions about the extent to which high repayments rest on group liability. Can individual liability work as well, or nearly as well?
2. Market-level Interest Rates: To what extent do high interest rates drive out the poor? Do high rates attract riskier clients? Does subsidized credit “crowd out” market-priced services from competing MFIs?
3. Focus on Poor Clients: What is the impact of microfinance on the poor? Does microfinance work for the very poor? What specialized services, if any, serve the “poorest of the poor?” Does one need to provide financial literacy along with the loan in order to be effective?
4. Simple Application Processes: Most MFIs have simple applications, or else they would have few clients. A useful extension is to determine what types of marketing are most effective at increasing take-up of services among the poor.
5. Provision of Services in Underserved Communities: To what extent does offering credit and savings in poor communities deepen access and increase welfare? Do programs that conduct meetings in the field but require clients to make repayments at the bank branch have lower client retention? Can provision of services in remote areas be profitable?
6. Focus on Female Clients: Anecdotally, many studies report that women have higher repayment rates than men. Is this true, and if so, what program designs can work best to encourage men to repay their loans? What products and policies can generate the greatest increase in empowerment of female clients?

Impact evaluation of microfinance need not be focused strictly on the impact of credit versus no credit. Instead, prospective evaluation can help MFIs, policymakers and researchers around the globe to design better institutions. Good evaluation not only can deliver to donors an assessment of the benefits that accrued from their investment but also can provide financial institutions with prescriptions for how best to run their businesses and how best to maximize their social impacts.