Evaluating Casual Impact of Microfinance: Challenges and Results

Abstract

In this paper, I survey the literature that studied the impacts of microfinance. The survey consists of four parts. First, I describe the methodological challenges associated with the impact evaluation of microfinance and how the randomized control trial (RCT) approach can address those challenges. I then present the results of six highly influential RCT studies published in the Special Issue of the American Economic Journal: Applied Economics in 2015. All six studies reached a similar conclusion that the overall impact of microfinance was modest and not transformative. Second, I describe the reasons suggested in the literature explaining why the impact is limited. Third, I survey two recent RCT studies that found a positive impact of microfinance and then discuss why these two studies differ from those in the Special Issue. Finally, I survey evidence of the negative impacts of microfinance.