By Jonathan Bauchet and Jonathan Morduch, published by the Financial Access Initiative (FAI) at New York University’s Robert F Wagner Graduate School of Public Service and Hunter College, June 2009, 39 pages, available at:
http://www.nyu.edu/projects/morduch/documents/articles/2008-06-Selective-knowledge.pdf
The authors propose that developing economic theories and testing them empirically are of utmost importance for “the creation of economics knowledge,” but that the collection of useful data largely depends on the willingness of households and institutions to respond to questionnaires since “answering surveys is usually voluntary.” The authors consider the implications of such voluntary reporting on knowledge about microfinance. Generally, useful data from poorer countries are difficult to gather with samples seldom fully representing the underlying populations. The authors argue that this problem is pertinent to microfinance data because microfinance institutions (MFIs) are systematically biased on “which survey to respond to and which specific indicators to report.”
The authors consider three sources of microfinance data from 2004 to 2006: The MIX Market website of the Microfinance Information Exchange (MIX); the MicroBanking Bulletin, which is published by MIX; and data from the Microcredit Summit Campaign (MSC). MIX collects MFI data mostly on financial and institutional indicators, along with a limited amount of data on social aspects. MicroBanking Bulletin data are from a subset of MFIs from the MIX Market adjusted for improved comparability and implicit subsidies. MSC collects data mostly on social outreach indicators, but from a larger number of MFIs.
As reporting to these databases is voluntary, results based on these data are vulnerable to self-selection bias, which can be manifested in several ways. First, the reporting institutions are likely to be different from the non-reporting ones as the former apparently prefer to expose their data. Second, participating MFIs self-select into reporting to either one or both of the databases. Finally, MFIs may report some indicators for some time periods but not for others. This paper examines the latter two sources of bias.
The analysis employs data on 2,072 MFIs from the MIX and MSC databases. The authors show that the two databases attract considerably different MFIs. MFIs reporting to MSC are typically larger, more likely to operate in South Asia and are more focused on reaching poor clients. On the contrary, MFIs reporting to the MIX Market are more profit-focused and more likely to operate in Latin America, Eastern Europe and Central Asia.
Financial indicators are more often reported than social indicators. Also, reporting patterns are directly linked with the MFIs’ region of operation, mission and size, which in turn affect analyses of key questions on trade-offs between financial and social goals of microfinance. For instance, the relationship between operational self-sufficiency and the percentage of female borrowers is positive in the MSC data but negative in the MIX data. The results emphasize the conditional nature of our knowledge and the value of supporting increased social reporting, which is limited in both of the large data sources.
The authors recommend that donors and policymakers come forward to support MFIs in collecting more consistent data on social outreach with recently improved poverty measurement tools. In addition, non-reporting institutions should be encouraged to begin reporting. It is hoped that these measures will enrich and re-shape the industry’s understanding of the microfinance landscape.
About The Financial Access Initiative (FAI):
The Financial Access Initiative (FAI) is a consortium of development economists at three universities in the US, New York University (NYU), Yale University and Harvard University, who research the expansion of access to financial services for low-income individuals. The initiative, which was launched with a USD 5 million grant from the Bill & Melinda Gates Foundation in late 2006, is housed at the Wagner Graduate School of Public Service at NYU. The Initiative is led by Managing Director Jonathan Morduch of NYU, Director Dean Karlan of Yale University and Director Sendhil Mullainathan of Harvard University.
About Microfinance Information eXchange (MIX)
Established in 2002, Microfinance Information Exchange (MIX) is a nonprofit organization with its headquarters in Washington, DC, and regional offices in Peru, Morocco and India. MIX provides financial and social performance information from microfinance institutions (MFIs), as well as business information from market facilitators, donor organizations and investors in microfinance. As of 2011, MIX Market, the arm of MIX that publishes a major database of MFI information, provides data on approximately 2,000 MFIs as well as information about funders, networks and service providers. MIX was founded by CGAP (Consultative Group to Assist the Poor) and is sponsored by Citi Foundation, Deutsche Bank Americas Foundation, International Fund for Agricultural Development (IFAD), the Bill and Melinda Gates Foundation and the Omidyar Network.
Microcredit Summit Campaign (MSC)
Microcredit Summit Campaign is a project that was launched in 1997 by RESULTS Educational Fund (REF), a nonprofit advocacy group that is based in Washington, DC. The Campaign’s mission is to help 100 million people rise above the international poverty line of USD 1.25 a day by 2015. By that time, the campaign also aims to bring financial and business services to 175 million people, especially women.
By Ashim Kar, Research Associate
Sources and Additional Resources:
Bauchet, J. and Morduch, J. (2010). “Selective knowledge: Reporting biases in microfinance data”, Perspectives on Global Development and Technology, Vol. 9, No. 3-4, pp. 240-69.
MicroCapital.org story, June 7, 2011: “MICROFINANCE PAPER WRAP-UP: Microfinance and Social Investment; By Jonathan Conning and Jonathan Morduch; Published by The Financial Access Initiative (FAI) at New York University’s Robert F Wagner Graduate School of Public Service and Hunter College”, https://www.microcapital.org/microfinance-paper-wrap-up-microfinance-and-social-investment-by-jonathan-conning-and-jonathan-morduch-published-by-the-financial-access-initiative-fai-at-new-york-university%E2%80%99s-robert-f-w/
MicroCapital.org story, August 6, 2010: “MICROFINANCE PAPER WRAP-UP: Microfinance Programs and Better Health: Prospects for Sub-Saharan Africa; by Paul M. Pronyk, James R. Hargreaves and Jonathan Morduch; Published by The Journal of the American Medical Association (JAMA)”, https://www.microcapital.org/microfinance-paper-wrap-up-microfinance-programs-and-better-health-prospects-for-sub-saharan-africa-by-paul-m-pronyk-james-r-hargreaves-and-jonathan-morduch-published-by-the-journal-of-the-amer/
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