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Evaluating the Impact of Microfinance on Savings and Income in Sri Lanka:Quasi-experimental Approach Using Propensity Score Matching

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  • Indunil De Silva

Abstract

The study applied recent advances in propensity score matching methods to assess the impact of microfinance on household income and savings. Results suggest that overall programme participants’ benefit incidence is indeed pro-poor. With respect to both household per capita income and savings, programme participation definitely has a positive impact for all low-income households. Consequently, this article’s findings have several important policy implications. The large positive impact of participating in microfinance programmes on household income and savings suggest that microfinance programmes may improve household status in terms of wealth. The regressive effect on household per capita income suggests that poorer households do not feel as much the effects of the intervention compared to richer households. The policy implication of this regressive effect might be that for the poorest programme participants, the availability of programme loans and savings schemes may be not sufficient to become highly productive in income-generating activities. The finding of participation in microfinance programmes not being highly effective in terms of savings for richer households highlights the importance of a robust and accurate targeting mechanism for the microfinance programme in Sri Lanka. Against the backdrop of these findings, policy planners and microfinance practitioners could re-examine the targeting approach of microfinance in Sri Lanka. Finally, the principal message that emerges from the study is: there are quantitatively non-negligible, average gains from microfinance on household savings and income, especially for the poor. JEL Classification : O16, C14, C21, G21

Suggested Citation

  • Indunil De Silva, 2012. "Evaluating the Impact of Microfinance on Savings and Income in Sri Lanka:Quasi-experimental Approach Using Propensity Score Matching," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 6(1), pages 47-74, February.
    • Handle: RePEc:sae:mareco:v:6:y:2012:i:1:p:47-74
    DOI: 10.1177/097380101100600103
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    References listed on IDEAS

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    Cited by:

    1. Mathilde Maîtrot & Miguel Niño-Zarazúa, 2017. "Poverty and wellbeing impacts of microfinance: What do we know?," WIDER Working Paper Series 190, World Institute for Development Economic Research (UNU-WIDER).
    2. Abera Alemu & Zerhun Ganewo, 2023. "Impact Analysis of Formal Microcredit on Income of Borrowers in Rural Areas of Sidama Region, Ethiopia: A Propensity Score Matching Approach," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(1), pages 65-85, March.
    3. Marcella Corsi & Marina De Angelis & Pierluigi Montalbano, 2013. "The Gender Impact of Microfinance: The Case of Wekembe in Uganda," Working Papers CEB 13-045, ULB -- Universite Libre de Bruxelles.
    4. Kundu, Amit, 2013. "Mobilization of Personal Savings among Microfinance- Participating Households: A Survey in West Bengal, India," Journal of Rural Cooperation, Hebrew University, Center for Agricultural Economic Research, vol. 41(2), pages 1-17.
    5. Mathilde Maîtrot & Miguel Niño-Zarazúa, 2017. "Poverty and wellbeing impacts of microfinance: What do we know?," WIDER Working Paper Series wp-2017-190, World Institute for Development Economic Research (UNU-WIDER).
    6. Xiaoqing Dai & Lijie Pu & Fangping Rao, 2017. "Assessing the Effect of a Crop-Tree Intercropping Program on Smallholders’ Incomes in Rural Xinjiang, China," Sustainability, MDPI, vol. 9(9), pages 1-19, August.

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    More about this item

    Keywords

    Microfinance; Propensity Score Matching; Quasi-experimental; Treatment Effects; Sri Lanka;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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