IDEAS home Printed from https://ideas.repec.org/p/eab/develo/22639.html
   My bibliography  Save this paper

Impact of Microfinance on Rural Households in the Philippines

Author

Listed:
  • 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.

Suggested Citation

  • Toshio Kondo & Aniceto Orbeta Jr. & Clarence Dingcong & Christine Infantado, 2008. "Impact of Microfinance on Rural Households in the Philippines," Development Economics Working Papers 22639, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:develo:22639
    as

    Download full text from publisher

    File URL: http://www.eaber.org/node/22639
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. John Weiss & Heather Montgomery, 2005. "Great Expectations: Microfinance and Poverty Reduction in Asia and Latin America," Oxford Development Studies, Taylor & Francis Journals, vol. 33(3-4), pages 391-416.
    2. Amin, Sajeda & Rai, Ashok S. & Topa, Giorgio, 2003. "Does microcredit reach the poor and vulnerable? Evidence from northern Bangladesh," Journal of Development Economics, Elsevier, vol. 70(1), pages 59-82, February.
    3. 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.
    4. 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).
    5. 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.
    6. 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 619-632, Nov.-Dec..
    7. Maldonado, Jorge Higinio & Gonzalez-Vega, Claudio & Romero, Vivianne, 2003. "The Influence Of Microfinance On The Education Decisions Of Rural Households: Evidence From Bolivia," 2003 Annual meeting, July 27-30, Montreal, Canada 22067, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. Coleman, Brett E., 1999. "The impact of group lending in Northeast Thailand," Journal of Development Economics, Elsevier, vol. 60(1), pages 105-141, October.
    9. Beatriz Armendariz & Jonathan Morduch, 2007. "The Economics of Microfinance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262512017, January.
    10. 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.
    11. Coleman, Brett E., 2006. "Microfinance in Northeast Thailand: Who benefits and how much?," World Development, Elsevier, vol. 34(9), pages 1612-1638, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bensch, Gunther & Peters, Jörg & Schmidt, Christoph M., 2012. "Impact evaluation of productive use—An implementation guideline for electrification projects," Energy Policy, Elsevier, vol. 40(C), pages 186-195.
    2. Jia, Xiangping & Cull, Robert & Guo, Pei & Ma, Tao, 2016. "Commercialization and mission drift: Evidence from a large Chinese microfinance institution," China Economic Review, Elsevier, vol. 40(C), pages 17-32.
    3. Rajbanshi, Ram & Huang, Meng & Wydick, Bruce, 2015. "Measuring Microfinance: Assessing the Conflict between Practitioners and Researchers with Evidence from Nepal," World Development, Elsevier, vol. 68(C), pages 30-47.
    4. 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).
    5. Gunther Bensch & Jochen Kluve & Jörg Peters, 2011. "Impacts of rural electrification in Rwanda," Journal of Development Effectiveness, Taylor & Francis Journals, vol. 3(4), pages 567-588, December.
    6. Peters, Jörg, 2009. "Evaluating Rural Electrification Projects - Methodological Approaches," Ruhr Economic Papers 136, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    7. Gagandeep Kaur Gill, 2014. "Microfinance and Poor: A Case Study of District Sangrur," International Journal of Regional Development, Macrothink Institute, vol. 1(1), pages 79-87, December.
    8. Akotey, Joseph Oscar & Adjasi, Charles K.D., 2016. "Does Microcredit Increase Household Welfare in the Absence of Microinsurance?," World Development, Elsevier, vol. 77(C), pages 380-394.
    9. Hisaki KONO & Kazushi TAKAHASHI, 2010. "Microfinance Revolution: Its Effects, Innovations, And Challenges," The Developing Economies, Institute of Developing Economies, vol. 48(1), pages 15-73.
    10. Grimm, Michael & Paffhausen, Anna Luisa, 2015. "Do interventions targeted at micro-entrepreneurs and small and medium-sized firms create jobs? A systematic review of the evidence for low and middle income countries," Labour Economics, Elsevier, vol. 32(C), pages 67-85.
    11. Hao Luan & Xiangping Jia & Jikun Huang, 2014. "Household Access to Nongovernmental Microfinance, Formal Credit and Informal Credit in Rural China," Review of Economics & Finance, Better Advances Press, Canada, vol. 4, pages 61-76, May.
    12. repec:eee:quaeco:v:64:y:2017:i:c:p:44-56 is not listed on IDEAS

    More about this item

    Keywords

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

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D10 - Microeconomics - - Household Behavior - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eab:develo:22639. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shiro Armstrong). General contact details of provider: http://edirc.repec.org/data/eaberau.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.