Microfinance Horizon

Author(s): Maren Duvendack & Richard Palmer-Jones

Abstract:

Recently, microfinance has come under increasing criticism raising questions of the validity of iconic studies which have justified the microfinance phenomenon. This paper applies propensity score matching (PSM), which has become widely used for the analysis of observational data, to the study by Pitt and Khandker (1998) which has been labeled the most rigorous evidence supporting claims that microfinance benefits the poorest especially when targeted on women. After carefully reconstructing the data we differentiate outcomes by gender of borrower, take account of borrowing from several formal and informal sources, and find that the mainly positive impacts of microfinance that we observe are shown by sensitivity analysis to be highly vulnerable to selection on unobservables, and we are therefore not convinced that the relationships between microfinance and outcomes are causal.

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