Tinker Summer Research Report
Agricultural and Resource Economics
“Microfinance: Do borrowers benefit from small-scale agricultural
A colorful local Guatemalan market where microenterprise
owners and farmers sell their products. Many
of these individuals have received a small-scale
loan from the many microfinance institutions
operating in the area.
the last decade the disbursement of small-scale loans
to agriculturalists and microenterprise owners has
grown dramatically in both scale and popularity as
many in the development community have come to see
microfinance as one of the best practices for increasing
individual capacities and wealth. This growth in microfinance
began with the apparent success of the Grameen Bank
in Bangladesh and has continued, often with the help
of development organizations such as the World Bank,
with the expansion of microfinance institutions into
most developing countries.
Although microfinance has received much attention
from academics, policy makers, and the public press,
very little is known regarding the effectiveness of
microfinance in increasing the profitability of microenterprises,
and in improving individual capacities and opportunities.
Advocates of microfinance can point to specific cases
in which microfinance resulted in a positive impact,
but serious and convincing empirical data do not yet
exist. Thus, the enthusiasm for microfinance has run
ahead of the available evidence. Given the large levels
of donor funds devoted to encouraging the spread of
microfinance, serious effort must be expended in obtaining
convincing empirical evidence.
This project developed and implemented a rigorous
methodology, in coordination with a participating microfinance
institution, for analyzing the impacts of microfinance
on those who receive microfinance loans. Specifically,
the project began in April when FUNDEA, a Guatemalan
microfinance institution, was contacted with a proposal
detailing the project and its associated methodology.
Over the next two months, in coordination with FUNDEA, this project refined and
generated a workable and appropriate methodology for
understanding the varied impacts associated with microfinance.
Upon my arrival in June, I began discussions with the
FUNDEA office that would be implementing the proposed
methodology. During these initial discussions with
FUNDEA and after visiting various villages that would
be involved in the project, it immediately became clear
that the methodology as proposed would not be successful.
Thus, more discussions were held during June and early
July. In these discussions we developed a new methodology
that would, although different from the original methodology,
effectively analyze the impacts of microfinance on
those who obtain loans.
local office of FUNDEA that participated
in the project. FUNDEA is a part of ACT,
the Belgian development association.
final methodology relies on a random assignment of
villages into treatment and control groups, and a
randomly determined order for FUNDEA’s disbursement
of loans in the treatment villages. In particular,
14 villages were selected during early July in the
northern portion of the department of Quiché.
Pairs of communities were then randomly generated and
within each community pair: one community was randomly
assigned to be a control while the other was designated
to be a treatment village. This therefore resulted
in seven treatment and seven control villages. In mid-July
FUNDEA then began randomly entering into, and giving
loans in each treated community in a randomly assigned
order. Thus, FUNDEA first entered randomly into one
of the seven randomly designated treatment villages.
Upon completion of loans in this village FUNDEA then
randomly entered into a second treatment village. At
the time of writing this report, FUNDEA has successfully disbursed loans
in three villages, implying that four treated communities
Throughout the study surveys will be given in both
treatment and control communities to analyze the varied
impacts of microfinance. Specifically, these surveys
will gather data on expenditures, income, assets, and
outlays over a nine month period for every household
in a treatment community who receives a loan, and for
every household in a control community that is statistically
similar to surveyed households in treated communities.
I will then exploit differences in observed outcomes
between treatment and control communities to analyze
the impact of microfinance on small-scale agriculturalists.
Data from this project will begin to become available
in approximately six months. The analysis of this data
will provide valuable insights and answers to the some
of the most basic, yet unanswered questions in microfinance.
For example, does microfinance have a positive impact
on those who obtain microfinance loans? If it does
have an impact, in what way? Do microenterprise profits
increase? And if so, does household income subsequently
increase? And finally, will microfinance impact all
clients equally? And if not, which type of client is
more likely to benefit? The answers to these questions
will prove invaluable as policy makers and microfinance
practitioners work to improve the functioning of microfinance
in the coming decades.