The capability approach as a framework for assessing the role of microcredit in resource conversion: the case of rural households in the Madagascar highlands

This article applies the capabilities approach in order to analyse microcredit as a tool for resource conversion permitting poor households to take advantage of latent opportunities. This approach calls for linking microcredit with the choices of the poor themselves. A sample of 290 rural households from the Madagascar highlands has been surveyed two consecutive years. To characterize the dimensions of poverty based on social practices of the poor and to inform about the most relevant dimensions available for a conversion process, data have been processed by a factor analysis. A hierarchical classification then permits the distribution of the households over three capabilities levels. Finally, an ordered multinomial logit brings out how microcredit influences the likelihood that a household receiving such a loan will reach a higher capability level. The main findings indicate that the microcredit represents a robust means to obtain a higher level of capability regardless the starting situation. Moreover, when the process of borrowing endures, poor households enter into a learning process which increases the effect of microcredit. Regardless of the gender of the household head, microcredit increases the probability to reach an enhanced level of capability, except for the poorest household headed by a woman. The education of the head of household improves the effect of microcredit only if the productive system implemented needs competences related to the educational attainment. JEL classification: O12, I32, G21