Impact evaluation for microfinance - review of methodological issues

The authors propose four reason to evaluate impact evaluations on Microfinance which can be used to estimate the impact of an entire program or to evaluate the effect of a new product or policy. (a) First, an impact evaluation is akin to good market and client research. (b) Second, even financially self-sufficient financial institutions often receive indirect subsidies in the form of soft loans or free technical assistance from donor agencies. (c) Third, impact evaluations are not simply about measuring whether a givenprogram is having a positive effect on participants. (d) Lastly, while many microfinance programs aim to be for-profit entities, not all are. Policymakers typically conduct impact evaluations of programs to decide how best to allocate scarce resources. However, since most microfinance institutions (MFIs) aim to be for-profit institutions that rely on private investments to finance their activities, some argue that evaluation is unwarranted. MFIs, like other businesses, have traditionally focused on quantifying program outcomes; in this view, as long as clients repay their loans and take new ones, the program is assumed to be meeting the clients needs. The microfinance industry needs reliable data, both to prove to donors, governments, and other stakeholders that microfinance works and to improve their products and processes so that they can accelerate their impact on poverty. Evaluations need not be mere costs to an organization in order to prove their worthiness. Quite to the contrary, a good product or process impact evaluation can help an organization improve its operations, maintain or improve its financial sustainability, and simultaneously improve client welfare. The microfinance industry has experienced tremendous experimentation, and now a plethora of approaches exist around the world.