Impact Assessment in Microfinance Companies
Impact Assessment, it is a research carried out to identify the changes brought about by microfinance programmes.
The major challenge in Impact Assessment is generally to establish the link between change that has occurred through the Microfinance programme.
In words of Rossi and Freeman
“Establishing impact essentially is making a case that the programme led to the observed or stated changes. This means that the changes are more likely to occur with program participation than without program participation. It does not imply that the changes always occur from program participation. Rather, it increases the probability that the changes will occur.”
In other words, the change that may have occurred in the target clients could be an outcome of other factors such as natural economic development process or other development initiatives taken by government, other NGOs, etc. Hence, the study has to keep these factors in consideration while attributing the change or impact to microfinance programme. The ability to establish plausible association between the changes identified and program participation strengthens the finding and their interpretation.
Impact Assessment Purpose
Impact Assessment (IA) are carried out and used by microfinance practitioners, donors, researchers and development policy makers. IA helps microfinance practitioners in ascertaining their own achievements and to improve their microfinance product and services. Donors also require Impact Assessment to justify investments in a particular microfinance programs. Donors need to see if the money they have been providing is achieving the social impacts commensurate to their expectations or not.
Policy makers and academicians are interested in Impact Assessment to establish the claim made about microfinance as an effective poverty alleviation tool. They are interested in knowing strength of microfinance as a development tools, its limitations, other positive or negative fallout of microfinance. Availability of such information can help the policy makers in developing better policies.
Therefore, IA can be carried out by different stakeholders with different objectives and with different purposes, as described below.
1. It can help MFI in knowing its clients better, in terms of their socio-economic profile including how poor and vulnerable the client base is and their livelihoods.
2. The changes that have occurred in the clients of the MFI due to microfinance.
3. Which way are the changes headed, in quantitative as well as qualitative terms ?
4. Are the changes significant as compared to the larger community ?
5. Is the MFI moving on the right track as set by its mission or has it digressed ?
6. What is the extent of digression, if any ?
7. IA can help in better understanding the needs of different categories of clients and gaps between these needs and services provided by the MFI.
8. MFI can improve methodology, products, services, strategy or systems based on outcome of IA.
9. MFI may attract donors or social venture capitalists through positive outcomes of IA.
10. Sharing of IA result with staff helps in keeping the staff oriented with the larger mission of the organization. This is necessary as most of the time, staff are generally guided by limited perspective of targets, portfolio quality and financial sustainability without realizing the mission.
IA for Researchers
1. Research may like to carry out IA for broader learning about microfinance impact on socio economic conditions.
2. Research may like to see effectiveness of Microfinance as a tool for poverty alleviation.
3. IA may help in policy advocacy.
IA for Donors
1. IA can help in seeing if the outcomes of programme they are investing in are aligned with their own mandate.
2. To find out of it the development outcome are significant to justify the investment in an MFI.
3. To identify new MFIs for investing in.
4. IA can help in broadening understanding and designing better donor policies.
1. IA can give insight on cost-benefits which can help in designing better policies.
2. Better understanding of Impact of microfinance help policy-makers to design policies to scale up the programme.
Perceptions about IA
Although from our discussion above Impact Assessment appears to be an important exercise but many MFIs are not convinced with the importance of IA and generally do not get it done. They consider impact assessment to be a donor-driven activity that is conducted either halfway through a programme or as a part of post-programmme evaluation. MFIs generally believe that IA is expensive and time consuming to undertake and should be left to the donors and external consultants to conduct.
Many people also consider Impact Assessment as an unnecessary exercise and an inefficient method to determine whether clients are getting benefited or not. This view is further accentuated by the fact that it is very difficult to establish the link between any observed change and the microfinance programme. Such people believe that there are other market proxies available to understand the impact and therefore, impact assessment is not worth the time, efforts and resources invested in carrying it out. It is too resource intensive exercise to prove something which can be naturally concluded from other indicators (market proxies).
By market proxies it is meant that an MFI, which is charging a sustainable rate of interest and people are willing to pay for it. And if such as MFI, is retaining clients and adding new clients as well, then it is a sufficient indicator that people are finding value in the services offered by such an MFI. People are willing to pay for the services of the MFI and are making more gains from the service than the cost they have to bear and hence the MFI is making a positive impact.
The argument though is quite rationale but experience has shown that this argument fails in practice where a number of factors other than economic ones, lead people to take decisions which may not be completely rational. Market proxies often cannot bring out the range of impacts from a particular intervention and the complex interactions of various factors that lead to decision-making by clients.
These factors affect an organization’s achieving positive impacts. IA exercise can bring out these complexities and inter-related factors and can help MFIs in designing products, services and delivery methodologies to have a higher positive impact. Eg. an impact assessment can bring out that not only the changes that have occurred on the community on account of microfinance but other factors which could be acting as constraints. Removal of these constraints or streamlining certain policies and products may have the potential to significantly increase the impact.
Another concern of skeptics is that whether an observed impact can objectively be attributed to the microfinance programme ?
This is definitely a complex question and is a major challenge in IA exercises. A considerable amount of debate in microfinance impact assessment has revolved on the question of attributions. Clients livelihood is complex, a client may have various sources of income; may be linked to various other development interventions by government or non-government organisations; may or may not use the loan provided by the MFI for the purpose it was given; may have availed credit for other sources as well.
All these factors and many more can have impact on the livelihood scenario of a client and hence attributing changes to microfinance is definitely a complicated task. This complexity results in research methodologies, which are high costs, and leads many people to questions the cost-effectiveness of Impact Assessment.
However considerable debate and work has been done in this regard. Particularly, the USAIDS’s AIMS project the Microcredit Summit, CGAP, MicroSave and works of number of individual researchers and MFIs have improved the research methodologies considerably.
These agencies have tried to focus on developing quick and reasonably reliable methods, which are useful for different stakeholders and are at the same cost effective. It has been realized that long, complicated and expensive studies are difficult to conduct, understand and therefore lose their very purpose as they are not adopted. It is also not true that long and complicated study may always yield concrete and objective result. Eg. an impact assessment survey in1994 by Pitt and Khandkar of several MFIs in Bangladesh was a very expensive study.
The survey and the analysis were considered to be very sound. The study used highly sophisticated econometric modeling. However, the study was found to be weak on contextual data necessary to interpret the findings. The study produced huge data but value judgments were needed to derive the conclusions. Another researcher demonstrated that how the conclusions of the study can differ primarily according to the researcher stand-point and frame of analysis and therefore interpretation of data, rather than observed differences in the clients studied. This highlighted the subjective nature of the study. Therefore, the focus is now on developing cost-effective and practical research methodologies.
In our next post we shall cover the Impact Assessment Process