Does Microfinance Really Reduce Poverty? What You Should Know Before Investing

The question of poverty reduction is for good reason of the highest importance to those within the microfinance community. Maybe the answer is intuitive to you, but the details make for great controversy. A recommended retrospective on the topic (52 pages long):

"Written by Nathanael Goldberg, Measuring the Impact of Microfinance: Taking Stock of What We Know provides an interesting guide on the effectiveness of microfinance programs and the divergence in opinion among experts. It examines roughly 100 impact evaluations released since 1986, including Reaching the Poor with Effective Microcredit, Mahabub Hossain and Catalina P. Diaz’s report on Grameen-style microfinance in the Philippines, and Microfinance and Poverty, a new study published in 2005 by Shahidur Khandker."

Mr. Goldberg conducts a comprehensive review of studies evaluating the impact of microfinance, something that up till now has been lacking. Although there are discrepancies among the data, he finds evidence that microfinance impacts include increases in empowerment, contraceptive use, and improved nutrition. He also highlights the key determinants of impact which include the control of loan, incoming poverty level and family crises. Measuring the Impact of Microfinance: Taking Stock of What We Know is certainly worth a read. Links to the original studies are also available and useful for a more in-depth look. While the paper provides clarity in many respects, this is still an area of tremendous debate åö what are the types of impacts investors want to see? And what is the best approach to measuring impact? The battle roars on between those favoring quantitative methods and others who back social performance measures.

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