Weldeslassie Hailai Abera, PhD Candidate, University of Kwa-Zulu Natal, Durban, South Africa
Cliare Vermaak, PhD, Senior Economic lecturer and researcher, Department of Economics, School of Accounting, Economics and Finance, College of Law and Management Sturdies, University of Kwa-Zulu Natal, South Africa
This review outlines the debates and questions within the quasi-experimental analysis on whether micro-credits have created the impact since they have been designed aiming at the poor to climb out of poverty and become non-poor after having access to micro-credits. The primary purpose of the research deals with the pillar questions do micro-credits play an efficient anti-poverty strategy to eradicate poverty? Do micro-credits generate the proposed products and results by raising the living standards of micro-finance clients and do beneficiaries become less poor after they get the micro-finance service as compared with those under comparable conditions but who do not have access.
Methodization empirical causes and techniques for explaining the intrinsic challenges in untangling and identifying the impact of an intervention program is a hard task since this method analyses the plight of recipients before and after a program that may capture not merely the impact because of the unique intervention but still other impacts that should have resulted even in the program’s absence. Comparing the condition of beneficiaries after the intervention with the counterfactual situations examining what would have happened to them in the project’s absence and what kind of service or goods beneficiaries would have access to instead of the offered by the intervention requires scrutiny, time-consuming and is the greatest challenge that makes thoughtful planning, capabilities, and execution. The rational and relevance behind the resolutions for implementing the scientific question of impact analysis is a crucial tool to enable policymakers to decide whether redesigning anti-poverty intervention the program, scale it up, interrupt it or designs similar intervention schemes for other societies.
Investigation of the matter ‘Do micro-credits work as a valuable anti-poverty program for Poverty Eradication? We carry evidence from Ethiopia ‘in the paper out in the following logical sequence: we first estimated propensity scores for participation on several pre-treatment variables. We then matched clients and non-clients based on these. Next, we estimated the average treatment effect, regarding participation as a treatment, and participants as the treated group.
Methodological tools of the research methods were propensity impact analysis procedure using the 2009 dataset from four locations in northern Ethiopia. The paper presents the results of an empirical analysis of the impacts of micro-credits on poverty reduction, which showed that micro-credits have a short time significant impact on household small (productive assets), on human capital investment (expenditure on buying school material and health). Equally noteworthy, we found MFIs to have a vital effect on family spending on food, non-food items, and poverty severity.
Keywords: microcredits, poverty, impact analysis, counterfactuals, propensity score matching.
JEL Classification: G2, G20, G21, G23.
Cite as:Weldeslassie, H. A., Vermaak, C. (2019). Do Micro-Credits Work As An Effective Anti-Poverty Pro-gram For Poverty Eradication? Evidence From Ethiopia. SocioEconomic Challenges, 3(2), 31-53. http://doi.org/10.21272/sec.3(2).31-53.2019.
- Armendáriz de Aghion, B., & Morduch, J. (2005). The Economics of Microfinance MIT Press. Cambridge, Massachusetts.
- Banerjee, A., Duflo, E., Glennerster, R., & Kinnan, C. (2015). The miracle of microfinance? Evidence from a randomized evaluation. American Economic Journal: Applied Economics, 7(1), 22-53.
- Becker, S. and Ichino, A. (2002) ‘Estimation of average treatment effects based on propensity scores’, The Stata Journal 2 (4), 358-377.
- Boudreaux, K.C. and Cowen, T. (2009) ‘The micro magic of microcredit’, The Wilson Quarterly 32 (1): 27-31.
- Cheston, S., & Reed, L. (1999). Measuring transformation: assessing and improving the impact of microcredit. Journal of Microfinance/ESR Review, 1(1), 3.
- Christen, R. P. (2001). Commercialization and Mission Drift: The transformation of Microfinance in Latina America, occasional paper, n 5.
- Crépon, B., Devoto, F., Duflo, E., & Parienté, W. (2015). Estimating the impact of microcredit on those who take it up: Evidence from a randomized experiment in Morocco. American Economic Journal: Applied Economics, 7(1), 123-50.
- Datar, S. M., Epstein, M. J., & Yuthas, K. (2008). In microfinance, clients must come first. Stanford Social Innovation Review, 6(1), 38-45.
- Deaton, A. (2010). Instruments, randomization, and learning about development. Journal of economic literature, 48(2), 424-55.
- Foster, J., & Greer, J. (1984). E. Thorbecke (1984), A class of decomposable poverty measures. Econometrica, 52(3), 761-766.
- Freedman, D. A. (2006). Statistical models for causation: what inferential leverage do they provide? Evaluation review, 30(6), 691-713.
- González Vega, C. (1998). Microfinance: broader achievements and new challenges.
- Haggblade, S., Hazell, P., & Reardon, T. (2010). The rural non-farm economy: Prospects for growth and poverty reduction. World Development, 38(10), 1429-1441.
- Heckman, J. J. (1979). Sample selection bias as a specification error. Econometrica: Journal of the econometric society, 153-161.
- Julien, K. (2009). A look at interest rates in microfinance. New York: New School University.
- Kar, A. K. (2013). Mission drift in microfinance: are the concerns really worrying? Recent cross-country results. International Review of Applied Economics, 27(1), 44-60.
- Karlan, D. S., & Zinman, J. (2008). Credit elasticities in less-developed economies: Implications for microfinance. American Economic Review, 98(3), 1040-68.
- Khandker, S. (2001, February). Does micro-finance really benefit the poor? Evidence from Bangladesh. In Asia and Pacific Forum on Poverty: Reforming Policies and Institutions for Poverty Reduction (Vol. 14).
- Khandker, S. R. (2005). Microfinance and poverty: Evidence using panel data from Bangladesh. The World Bank Economic Review, 19(2), 263-286.
- Kondo, T., Orbeta Jr, A., Dingcong, C., & Infantado, C. (2008). Impact of microfinance on rural households in the Philippines. IDS bulletin, 39(1), 51-70.
- Roodman, D., & Morduch, J. (2009). The impact of microfinance on the poor in Bangladesh: revisiting the evidence. Center for Global Development (CGD) Working Paper, 174.
- Morduch, J. (1998). Does microfinance really help the poor?: New evidence from flagship programs in Bangladesh. Research Program in Development Studies, Woodrow School of Public and International Affairs.
- Morduch, J. (1999a). The role of subsidies in microfinance: evidence from the Grameen Bank. Journal of development economics, 60(1), 229-248.
- Morduch, J. (1999b). The microfinance promise. Journal of economic literature, 37(4), 1569-1614.
- Morduch, J. (2000). The microfinance schism. World development, 28(4), 617-629.
- Morduch, J., & Johnston, J. (2007a). The unbanked: evidence from Indonesia. Financial access institute (FAI), NYU Wagner Graduate School of Public Service, March.
- Morduch, J. (2007b). Smart subsidies. In Microfinance and Public Policy (pp. 72-85). Palgrave Macmillan, London.
- Nega, F. (2008). Poverty, asset accumulation, household livelihood and interaction with local institutions in northern Ethiopia (Doctoral dissertation, Katholieke Universiteit Leuven).
- Olivares-Polanco, F. (2005). Commercializing microfinance and deepening outreach? Empirical evidence from Latin America. Journal of Microfinance/ESR Review, 7(2), 5.
- Ravallion, M. (2001). The mystery of the vanishing benefits: An introduction to impact evaluation. the world bank economic review, 15(1), 115-140.
- Rhyne, E. (1998). The yin and yang of microfinance: Reaching the poor and sustainability. MicroBanking Bulletin, 2(1), 6-8.
- Rosenbaum, P. R., & Rubin, D. B. (1983). The central role of the propensity score in observational studies for causal effects. Biometrika, 70(1), 41-55.
- Tesfay, G. B., & Gardebroek, C. (2009). Does microfinance reduce rural poverty? Evidence based on household panel data from Tigray, northern Ethiopia.
- Verbeek, M. (2008). A guide to modern econometrics. John Wiley & Sons.
- Weldeslassie, H.A. (2017). Does Microfinance Help to Reduce Poverty in Ethiopia ? Propensity Score Matching Impact Analysis. Enterprise Development & Microfinance 28(4), 255-283. http://10.0.13.34/1755-1986.2017.HAW%0Ahttp://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=127504364&site=ehost-live&authtype=ip,uid.
- Woldehanna, T. (2005). The impact of Debedit Credit and Savings Institution (DECSI) on Poverty Reduction and Community Development. In Proceedings of the International Conference on Microfinance Development in Ethiopia: Impact and Systainability of MIFs, Addis Ababa, Ethiopia, 2005 (pp. 236-269).
- Waller, G. M., & Woodworth, W. (2001). Microcredit as a grass‐roots policy for international development. Policy Studies Journal, 29(2), 267-282.
- Woller, G. M., Dunford, C., & Woodworth, W. (1999). Where to microfinance. International Journal of Economic Development, 1(1), 29-64.
- Wooldridge, J. M. (2010). Econometric analysis of cross section and panel data. MIT press.
- Wooldridge, J. (2012, January). Treatment effect estimation with unconfounded assignment. In American Accounting Association/Financial Accounting and Reporting Section Workshop.
- Zewde, Z. N. (2008). Microfinance loan delivery, utilization and impact: with specific reference to Tigray, northern Ethiopia.