The Miracle of Microfinance Revisited: Evidence from Propensity Score Matching

We provide new evidence on the effectiveness of microfinance intervention for poverty alleviation. We apply the Propensity Score Matching (PSM) method to data collected in a recent randomized control trial (RCT) in India by Banerjee et al. (2014). The PSM method allows us to answer an additional set of questions not answered by the original study. First, we explore the characteristics of MFI borrowers relative to two comparison groups: those without any loans and those with other types of loans, predominantly from family and friends and money lenders. Second, we compare the impact on expenditures of MFI borrowers relative to these two comparison groups. We find that microfinance borrowers have higher expenditures in a number of categories, notably durables, house repairs, health, festivals and temptation goods. The differences are stronger relative to those without any loans. Our results suggest that microfinance can make a larger difference for households previously excluded from other credit sources. However, some of the increased expenditures are unlikely to lead to long-term benefits and there is no significant difference in total expenditures. We also present suggestive evidence of negative spillovers, i.e. non-participants reducing some categories of expenditures, while MFI participants “pick up the tab.”

Leave a Comment

Your email address will not be published. Required fields are marked *

The University of Hawaii Economic Research Organization (UHERO) welcomes online comments to stories that are posted on our website or social media pages. Comments are intended to be a forum for open, respectful, and family-friendly discussion. UHERO reserves the right to remove anything posted on our website or social media pages that is deemed inappropriate. All comments are moderated and will therefore have a delayed post time.
Some guidelines (not an exhaustive list) we use when moderating/approving comments include:

  • Do not bully, intimidate, or harass any user.
  • Do not post content that is hateful, threatening or wildly off-topic; or do anything unlawful, malicious, discriminatory or defamatory.
  • Observe confidentiality laws at all times.
  • Do not post spam or advertisements.
  • Observe fair use, copyright and disclosure laws.
  • Do not use vulgar language or profanity.

UHERO may amend this policy from time to time.