Measuring the impact of microfinance products and services on poverty alleviation: a review of literature

Abstract

Aside from merely doing business, one of the core aims of microfinance is to provide alternative credit to the poor and disadvantaged groups. In this way, they help to equalize and expand economic means and opportunities for the poor and low-income people in developing societies. However, not much is known about the effectiveness of specific microfinances in poverty alleviation. Besides, it seems there exist no specific model for evaluating the effectiveness of microfinance services and products in alleviation and eradication of poverty. As such, this article attempts to define the parameters to be used for assessing the impact of microfinance products and services on poverty alleviation, especially in developing countries. The study drew findings from secondary research. It was drawn from existing literature on microfinance products and services, and the impact of microfinance. The reviewed publications included relevant journal articles, book chapters and some media reports on microfinance lending in developing countries. The literature was evaluated and findings drawn and interpreted. The review of literature showed that a positive impact of microfinance on household welfare and economic activity is possible despite the variation in the assessments’ methodology, time and location. At the household welfare level, significant positive changes are identified on several outcomes including income, wealth, household expenditure and consumption, savings, food security, children schooling, non-land asset holdings, physical and mental health and empowerment. Nevertheless, the findings showed that the impact varies in significance and magnitude depending on a number of factors such as borrowers’ gender, level of poverty, and level of education and experience, in addition to the time span of the assessment. The findings of the study shed more light on the conceptualization of poverty and how it correlates more broadly to microfinancing interventions.