Can Microfinance help to Reduce Poverty? With Reference to Tigrai, Ethiopia
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Micro Finance has broadened rapidly since its inception in the late 1970s, but scholars have divergent views whether how much it helps to poor. This research reports on the assessment of the impact of participation in microfinance. However, it is difficult to establish a causal relationship between participation and poverty indicators, because of unobserved heterogeneity and reverse causality. These issues were largely avoided in the present study, which used propensity score matching and FE and RE methods to examine whether microfinance helps to reduce poverty. Using the dataset, we first estimated propensity scores for participation on several pretreatment variables. We then matched clients and non-clients on the basis of these. Next, we estimated the average treatment effect, considering participation as a treatment, and participants as the treated group. We employed different matching methods to ascertain the robustness of any effects. Besides, for the (2007 & 2009) data set, we used the FE and RE models to fully address the two major problems. We found significant impact of microfinance on household productive assets, but we did not find significant impact on fixed assets and monthly expenditures in both cases. The propensity score matching and panel data analyses identified microfinance as having direct effects on households productive and no fixed assets and monthly expenditures.