FINANCIAL ACCESS INITIATIVE
Contributions to this research report made by
a member of The Financial Access Initiative
The Financial Access Initiative is a consortium
of researchers at New York University, Harvard,
Yale and Innovations for Poverty Action.
NYU Wagner Graduate School
295 Lafayette Street, 2nd Floor
New York, NY 10012-9604
Framing Note No. 2
Impact of Credit: How to Measure Impact
and Improve Operations Too
Dean Karlan and
Financial Access Initiative
As the microfinance industry attracts greater media attention, donations and now investments
with each passing year, a single provocative fact becomes increasingly surprising: the lack of
clear evidence demonstrating whether it works. Undoubtedly the microfinance industry has been
spectacularly successful at reaching millions of poor households with credit and savings services.
And those clients appear to be satisfied customers: many return. Yet in many markets, many
have access but do not avail themselves of the services. And in developed markets, regulators
often take proactive steps to restrict high-interest loans under the premise that they can do harm.
The basic premise of microfinance, that credit extended to the poor for investing in
entrepreneurial activities increases their welfare of their households, remains untested by rigorous
scientific standards. Given the massive flow of money pouring into microfinance, policymakers,
donors and investors should demand to have clearer, more decisive evidence in favor of
microfinance. Resources are scarce, after all, and every dollar invested in microfinance is a dollar
not donated to or invested in health or education or other projects aimed at alleviating poverty.
Why Should We Measure Impact?
All impact evaluations attempt to answer the same question: “How are the lives of the
participants different than