Is Microfinance a Good Poverty Alleviation Strategy? Evidence from Impact Assessment

This paper examines empirical evidence to check if microfinance is a good poverty alleviation strategy. It evaluates the effects of microfinance at the micro, meso, and macro levels, as well as the sustainability of microfinance.

The study evaluates the effectiveness of microfinance vis-à-vis other poverty-alleviation interventions by analyzing evidence related to the comparative cost-effectiveness of these strategies. Findings include:

• Microfinance has some impact on the poverty level of households, especially on female borrowers, schooling, nutrition, health, fertility and women empowerment;
• Microfinance has a higher impact on households closer to the poverty line, than the poorest of the poor;
• Microfinance reduces household vulnerability through consumption and labor smoothing;
• Large proportion of microfinance that are being used for consumption-smoothing raise concern about long-term improvement of the participating households;
• Lack of sustainable and cost-effective microfinance programs raises concerns about microfinances long-term contribution to income expansion and poverty reduction;
• Microfinance might result in redistribution, rather than an increase in income and employment, if economic growth is sluggish;
• Microfinance is better used as an instrument along with other policies for poverty alleviation rather than a poverty reduction strategy in isolation.