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Impact of Microfinance on Rural Households in the Philippines

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Author Info

  • Toshio Kondo

    (PIDS)

  • Aniceto Orbeta Jr.
  • Clarence Dingcong
  • Christine Infantado

Abstract

This paper reports on the impact evaluation study of the Rural Microenterprise Finance Project (RMFP) in the Philippines. RMFP aimed to support efforts of the Government of the Philippines to strengthen rural financial institutions by assisting organizations that employed the Grameen Bank Approach (GBA) in providing credit to the poor. The project was implemented by the Peoples Credit and Finance Corporation (PCFC) and funded by the Asian Development Bank. The evaluation uses a quasi-experimental design with incoming clients of randomly selected participating microfinance institutions as the comparison group. An important innovation in the study is the inclusion of the appropriate number of former clients among the treatment group. Qualified non-participating households provide the control for area effects. The impact estimation uses the difference-in-difference estimation technique which effectively controls for the known sources of biases namely : nonrandom program participation (sample selection), non-random program placement, and non-random drop-out. The survey enumerated some 2,200 households divided evenly between treatment and comparison areas. It covered 116 villages spread throughout the three groups of islands (Luzon, Visayas, and Mindanao) and 38 microfinance institutions consisting of three types - banks, cooperatives, and non-government organizations. The survey results show the program appears to be hitting only a limited number of the intended target as majority of the existing clients and the incoming clients are found to be not poor according to official definition. The estimation results show a mildly significant positive impact on per capita income, per capita total expenditure and per capita food expenditure of loan availability. This impact, however, was found to be regressive negative on poorer households and positive only for households in the richest quartile. The program has enabled participants to reduce dependence on presumably higher-priced non-program loans as well as increased the proportion of those having savings. It has also made program clients busier with larger number of enterprises engaged in and more workers employed in these enterprises. No significant impact, however, was found on assets and human capital investments. The foregoing results led the authors to recommend that for microfinance programs to be effective as a poverty-alleviation tool there is a need to review and constantly monitor the effectiveness of the targeting procedures. In addition, it was pointed out that there maybe a need to assist the poor in selecting appropriate projects that not only ensure loan repayment but also generate ample profit as well.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Development Economics Working Papers with number 22639.

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Date of creation: Jan 2008
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Handle: RePEc:eab:develo:22639

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Keywords: microfinance; impact evaluation; quasi-experimental design; Philippines;

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References

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  1. Weiss, John & Montgomery, Heather, 2004. "Great expectations: microfinance and poverty reduction in Asia and Latin America," MPRA Paper 33142, University Library of Munich, Germany.
  2. Amin, S. & Rai, A.S. & Topa, G., 1999. "Does Microcredit Reach the Poor and Vulnerable? Evidence from Northern Bangldesh," Working Papers 99-06, C.V. Starr Center for Applied Economics, New York University.
  3. Coleman, Brett E., 1999. "The impact of group lending in Northeast Thailand," Journal of Development Economics, Elsevier, vol. 60(1), pages 105-141, October.
  4. Mark M. Pitt & Shahidur R. Khandker, 1998. "The Impact of Group-Based Credit Programs on Poor Households in Bangladesh: Does the Gender of Participants Matter?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 958-996, October.
  5. Jorge Higinio Maldonado, 2005. "The Influence Of Microfinance On The Education Decisions Of Rural Households: Evidence From Bolivia," DOCUMENTOS CEDE 003606, UNIVERSIDAD DE LOS ANDES-CEDE.
  6. Ricardo Bebczuk & Francisco Haimovich, 2007. "MDGs and Microcredit: An Empirical Evaluation for Latin American Countries," CEDLAS, Working Papers 0048, CEDLAS, Universidad Nacional de La Plata.
  7. Weiss, John & Montgomery, Heather & Kurmanalieva, Elvira, 2003. "Micro finance and poverty reduction in Asia: what is the evidence?," MPRA Paper 33140, University Library of Munich, Germany.
  8. Beatriz Armendariz & Jonathan Morduch, 2007. "The Economics of Microfinance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262512017, January.
  9. Papke, Leslie E & Wooldridge, Jeffrey M, 1996. "Econometric Methods for Fractional Response Variables with an Application to 401(K) Plan Participation Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 619-32, Nov.-Dec..
  10. Zeller, Manfred & Sharma, Manohar & Ahmed, Akhter U. & Rashid, Shahidur, 2001. "Group-based financial institutions for the rural poor in Bangladesh: an institutional- and household-level analysis," Research reports 120, International Food Policy Research Institute (IFPRI).
  11. Coleman, Brett E., 2006. "Microfinance in Northeast Thailand: Who benefits and how much?," World Development, Elsevier, vol. 34(9), pages 1612-1638, September.
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Cited by:
  1. Gunther Bensch & Jörg Peters, 2011. "Impact Evaluation of Productive Use – An Implementation Guideline for Electrifi cation Projects," Ruhr Economic Papers 0279, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  2. Bensch, Gunther & Kluve, Jochen & Peters, Jörg, 2011. "Impacts of Rural Electrification in Rwanda," IZA Discussion Papers 6195, Institute for the Study of Labor (IZA).

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