Impact assessment methodologies for microfinance: theory, experience and better practice?

Abstract

In recent years impact assessment (IA) 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 microfinance has very beneficial economic and social impacts (Holcombe, 1995; Hossain, 1988; Khandker, 1998; Otero and Rhyne, 1994; Remenyi, 1991 and Schuler et al., 1997). At the other are writers who caution against such optimism and point to the negative impacts that microfinance can have (Adams and von Pischke, 1992; Buckley, 1997; Montgomery, 1996; Rogaly, 1996 and Wood and 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 and Mosley, 1996 and Mosley and Hulme, 1998).