Evaluating Microfinance?

InM organised a seminar on “Evaluating Microfinance?” on December 24, 2009 at the Institute’s premise. Dr. Salim Rashid, professor of Economics, University of Illinois, Urbana Champaign, USA and Visiting Fellow, InM gave a talk on the topic. Professor Wahiduddin Mahmud, Chairman, InM chaired the seminar. Dr. Zaidi Sattar, Chief economist, The World Bank, Dr. Mustafa Kamal Mujeri, Director General, BIDS and Dr. Quazi Mesbahuddin Ahmed, Managing Director, PKSF were among others present at the seminar.

It was an insightful academic discussion on the bumpy journey of microfinance over three decades and associated confusions and misconceptions about its success and failure as a tool of poverty reduction.

Professor Rashid pointed out some major challenges in evaluating impacts of microfinance that involves obsession with objectivity of number, not taking time to understand the factual effect of microfinance on the target population over time, not using alternative theoretical models that will help get multidimensional perspectives, failure to separate the evaluation of microfinance from microfinance institutions and so on.

Citing several success stories that involved cost savings and product and process innovation on the part of the beneficiaries, Professor Rashid tried to show that microfinance does work to change to lives of people.

Coming back to the problem of evaluating the effects of microfinance more accurately and in an unbiased way, Professor Rashid threw light on some important issues particularly the absence of models describing choice by households and by microfinance institutions. Such models would naturally address significant factors like taking into account the self-selection characteristics of the households receiving microfinance and the systemically different nature of the villages that are selected for MFI operations. He also brought forth an important but frequently neglected factor which is the effect of external economy on the lives of the MFI beneficiaries, the people working on microfinance and the activities of MFIs.

He emphasised the need for new models for determining income effects and the importance of looking beyond income effects to include social gains like health and education that is brought about by microfinance. Evaluating intert-temporal effects is hard but essential; it is the step-child of microfinance evaluation. The seminar provoked an interesting academic discussion on the research problems with impact evaluation of microfinance among the participants.