All that Glitters: A Meta-Analysis of Microfinance in the Developing World

April 2016

Abstract:
Microfinance has become a popular tool over the last several decades to fight poverty in the developing world. In a meta-analysis combining data from randomized field experiments, quasi-experiments, and market reports from 38 Microfinance Institutions in Africa, Asia, North America, and South America, this paper tests the hypothesis that microfinance alleviates poverty. Ordinary least squares regression was used to determine poverty rate changes associated with usage of two types of microfinance products: micro-savings & micro-loans. The rate changes were observed over periods of time ranging from two to seven years. The regression showed that on average, micro-loans were associated with a 1.6 percentage point reduction in poverty rates. Micro-savings programs were associated with a 3.19 percentage point reduction in poverty rates. Yet, high standard errors made neither finding statistically significant. Results suggest that in at least in the short-term, microfinance will not significantly reduce poverty.

ogrady-microfinance-in-the-developing-world