Impact of Microfinance On Poverty: Fuiems

Impact of Microfinance on Poverty
By
Umara Noreen
FUIEMS
Foundation University Islamabad
2010
Impact of Microfinance on Poverty
By
Umara Noreen
A Dissertation Submitted to
The Faculty of Management Sciences
Foundation University, Islamabad
In partial fulfillment of the requirements for the
Degree of Doctor of Philosophy

In
Management Sciences
2010
I start with the name of ALLAH,

The most Compassionate, The most Merciful
All praises be to Allah, Lord of the Universe,
The most Compassionate, The most Merciful,
Sovereign of the Day of Judgment,
Thee Alone we worship; and no Thee Alone we turn for help.
Guide us to the straight path;
The path of those on whom Thou has bestowed Thy grace;
Not of those who have incurred thy anger,
And nor of those who have gone astray.
(Holy Quran 1:1-7)
Supervision, Evaluation and Defense

Supervision Prof. Dr. M. Iqbal Saif
drmisaif@gmail.com
Supervisor
FUIEMS
Foundation University
Islamabad, Pakistan
Evaluation
Prof. Dr. Amin Sarkar

Amin.sarkar@aamu.edu
Foreign
Evaluator
School of Business Alabama

A & M University USA
Economic Development and
Development Issues in
Business
Prof. Dr. Syed Azizi Wafa

sazizi@ums.edu.my
Foreign
Evaluator
Labuan International Campus

Universiti Malaysia, Sabah,
Malyasia
Development Issues in
Business
Prof. Dr. Mushtaq A. Sajid

drmasajid@hotmail.com
Local
Evaluator
University College of
Administrative Sciences,
University of Azad Jammu &
Kashmir, Kotli Campus
Prof. Dr. Mushtaq A. Sajid

drmasajid@hotmail.com
Local
Examiner
University College of
Administrative Sciences,
University of Azad Jammu &
Kashmir, Kotli Campus
Dr. H Humayun Naeem

hummayoun@yahoo.com
Local
Examiner
FUIEMS
Foundation University
Islamabad, Pakistan
Dr. Syed Hassan Raza

hasaan_raza@aiou.edu.pk
Local
Examiner
Allama Iqbal
Open University
Business Administration
Islamabad
Defense
TABLE OF CONTENTS
Declaration
Acknowledgement
ii
Abstract
iii
List of Acronyms
iv
List of Tables
List of Figures
ix
List of Appendices
Chapter One. INTRODUCTION
1.1
Background of Research
1.1.1
Defining Microfinance
1.1.2
Microfinance and Micro credit
1.1.3
Microfinance in Developing Countries
1.1.4
Defining Poverty
1.1.5
Microfinance and Poverty
1.1.6
Poverty in the Global Perspective
11
1.2
Microfinance in Pakistan
12
1.3
Identification of the Knowledge Gap
14
1.4
Research Objectives
15
1.5
Significance of the Study
16
1.6
Statement of the Problem
17
1.7
Expected Contribution of the Study
17
Chapter Two. REVIEW OF LITERATURE
2.1
Theoretical Underpinnings
20
2.1.1
Types of Impact Assessment
22
2.1.2
Challenges of Impact Evaluation
22
2.2
Conclusion of Impact Assessment Studies
31
2.3
Social Impact of Microfinance
32
2.4
Generic model of Social Impact Assessment
34
Chapter Three. CONCEPTUAL FRAME WORK
3.1
Research Design
36
3.2
Formulation of Hypotheses and Operationalization of Variables
38
3.2.1
Family/Household-Level
38
3.2.2
Micro-enterprise Level
47
3.2.3
Demographic Characteristics of the Clients
50
3.3
Proposed Research Model
51
Chapter Four. METHODOLOGY
4.1
Small Enterprise Education and Promotion (network) SEEP
52
4.2
Client Assessment Continuum
53
4.3
Unit of Assessment
53
4.4
Longitudinal vs. Cross-sectional Design in Impact Assessment
54
4.5
Survey Method
57
4.6
Instrumentation: Development of Interviewee Data Form
57
4.7
Sampling Procedures
59
4.7.1
Cluster Sampling
60
4.7.2
Sample Size
61
4.8
Selection of Microfinance Providers
62
4.9
Pretest
63
Chapter Five. DATA ANAYSIS
5.1
Response Rate and Non-Response Bias
65
5.2
Overall Sample Demographic Profile
65
5.3
Descriptive Analysis of Responses
68
5.4
Reliability
75
5.5
Validity
78
5.6
Chi Square Test
80
5.6.1.
Basic Computational Equation
80
5.7
Econometric Evidence: Logistic Regression
102
Chapter Six. INTERPRETATION
6.1
Household Level
113
6.2
Micro-enterprise Level
120
Chapter Seven. CONCLUSION and RECOMMENDATIONS
7.1
Salient Findings
124
7.2
Conclusion
125
7.3
Practical Implications
125
7.4
Limitations
126
7.5
Recommendations
127
7.6
Future Research
129
REFERENCES
APPENDICES
DECLARATION
I, Umara Noreen, PhD scholar in the Department of Management Sciences, Foundation
University, Islamabad, hereby declare that the matter printed in the thesis titled Impact
of Microfinance on Poverty is my own work and has not been submitted as research
work to any university or institution in Pakistan or abroad.
Umara Noreen
ii
ACKNOWLEDGEMENT
I am grateful to almighty Allah for His constant mercy, guidance and support for the
completion of present manuscript.
I owe considerable thanks to my supervisor Professor Dr. M. Iqbal Saif, Director,
Management
Sciences,
Foundation
University,
Islamabad
for
his
constant
encouragement, invaluable insight, and unconditional support with material and

resources. I am indebted to Dr. Qaisar Abbas, Dr. Shumaila Yakub Khan Yousafzai,
Arshad Zaheer and Manshoor Shaukat for their reassurance and enthusiasm. Special
thanks are due to the management of NRSP, Khushali Bank, First Microfianace Bank,
Pak Oman Microfinance Bank and Pakistan Microfinance Networks for their kind
cooperation during data collection. I am thankful to my Baji, Mamoon, Zeeshan and
Nouman from the bottom of my heart for their continuous support, encouragement and
motivation.
I am also indebted to all my friends for their constant support and motivation, Atiya,
Hanniya and Sabeen to whom I can count for anything.
Credit goes to my parents for their help that held me up in the hour of need. I
appreciate the many prayers and hopes they have whispered for my success. I wish to
thank my children, Fatima and Taha for their patience and understanding through out my
research phase. At last I owe a great deal to my husband for understanding, encouraging
and being a constant emotional and moral support during the work.
Umara Noreen
iii
ABSTRACT
The primary objective of this thesis is to analyze the impact of microfinancing on poverty
through a sample survey of four microfinance institutions, using concepts: like household
income/expenditure, asset holdings and diversity, education and various measures of
vulnerability at household and enterprise level.
The study employed the tool developed in collaboration by Assessing the Impact of
Microenterprise Services (AIMS) and Small Enterprise Education and Promotion
network (SEEP). The tool has been modified in the local context. Face to face structured
interviewing was used to collect primary data.
Chi square test is used to analyze the difference between incoming (Less than one year)
and established clients (2-5 years) on the basis of poverty indicators established at
household and enterprise level. Role of demographic and other independent variable is
analyzed with the help of multinomial regression analysis.
The evidence turns out to be mixed one like (i) strong positive impact on children
education and enterprise financial performance. (ii) mixed evidence on food security,
household expenditures and household assets and no impact has been observed on
housing and income smoothening of enterprise.
Present study can be very useful to IA practitioners and policy makers. This research has
made a significant contribution in unraveling some of the myths of microfinance hence
advancing literature and research on this important issue.
Keywords: Microfinance, Poverty Alleviation, Household Welfare, Enterprise
Management, Impact Assessment.
iv
LIST OF ACRONYMS
AIMS
Assessing the Impact of Microenterprise Services (project)
ASHI
Ahon Sa Hirap
BRAC
Bangladesh Rural Advancement Committee
BRI
Bank Raykat Indonesias Unit Desa in Indonesia
CGAP
Consultative Group to Assist the Poor
FMFB
The First Microfinance Bank Ltd.
HEPM
Household Economic Portfolio Model
Imp-Act Improving the Impact of Microfinance on Poverty: Action Research Programme

KB
Khushhali Bank
MDG
Millennium Development Goals
MFB
Microfinance Banks
MFI
Microfinance Institution
MTDF
Medium Term Development Framework
NRSP
National Rural support Programmme
POMFB Pak-Oman Microfinance Bank Ltd.

PRSP
Poverty Reduction Strategy Paper
RSP
Rural Support Programme
SEEP
Small Enterprise Education and Promotion (network)
SPI
Social performance indicator
SPM
Social performance management
USAID
United States Agency for International Development
LIST OF TABLES
TABLE
TITLE
PAGE
1.
Challenges Faced By Microfinance Industry in Pakistan
13
2.
Summary of Impact Assessments (1995-2007)
26
3.
Operationalization of Education
39
4.
Operationalization of Housing
40
5.
Operationalization of Food Security
42
6.
Operationalization of Households Income/expenditure
44
7.
Operationalization of Household Assets
46
8.
Operationalization of Financial Performance
48
9.
Operationalization of Enterprise Resource Base
49
10.
Operationalization of Income Smoothening
50
11.
Cost and Benefit Analysis of Poverty Assessment Approaches
52
12.
Units of Assessment and their Advantages and Disadvantages
54
13.
Impact Assessment Studies using Different Study Designs
55
14.
Overview of the Employed Research Methods
57
15.
Minimal Sample Size for Two Groups of Clients Disaggregated
61
by one subcategory
16.
Minimal Sample Size for Two Client Groups Disaggregated by
61
two sub-categories
17.
Summary Statistics of Microfinance Institutes
63
18.
Demographic Profile of the Respondents
65
19.
Household Profile of the Respondents
66
vi
20.
Organizational and Client Profile
67
21.
Descriptive Statistics of Childrens Education
69
22.
Descriptive Statistics of Housing
70
23.
Descriptive Statistics of Food Security
70
24.
Descriptive Statistics of Household Expenditure
71
25.
Descriptive Statistics of Household Assets
72
26.
Descriptive Statistics of Enterprise of Financial Performance
73
and Enterprise Resource Base

27.
Descriptive Statistics of Income Smoothening
75
28.
Reliability Statistics
78
29.
Rationale for choosing Chi-Square Test
79
30.
Chi-Square Tests for EDU 1
80
31.
81
32.
81
33.
Chi-Square Tests for HUS 1
82
34.
Chi-Square Tests for HUS 2
82
35.
Chi-Square Tests for FD1
83
36.
Chi-Square Tests for FD 2
83
37.
84
38.
84
39.
85
40.
Chi-Square Tests for HSIN 1
85
41.
86
vii
42.
86
43.
87
44.
87
45.
88
46.
88
47.
89
48.
89
49.
Chi-Square Tests for HSAS 1
90
50.
90
51.
91
52.
91
53.
92
54.
92
55.
93
56.
93
57.
Chi-Square Tests for ENT 1
94
58.
94
59.
95
60.
95
61.
96
62.
96
63.
97
64.
97
viii
65.
98
66.
98
67.
99
68.
Chi-Square Tests for ENR 12
99
69.
Chi-Square Tests for ENR13
100
70.
Chi-Square Tests for INS 1
100
71.
Chi-Square Tests for INS 2
101
72.
Chi Square Results at a Glance: Summary Table
101
73.
Summary of Multinomial Logistic Regression for Education,
105
Housing and Food

74.
Summary of Multinomial Logistic Regression for Household
107
Expenditures
75.
Summary of Multinomial Logistic Regression for Household
108
Assets
76.
Summary of Multinomial Logistic Regression for Enterprise
110
Management
77.
Multinomial Regression Results at a Glance: Summary Table
111
ix
LIST OF FIGURES
FIGURE
TITLE
PAGE
1.
Matrix of Microfinance (and related) Institutions in Bangladesh,
2006
2.
Microfinance Can Reach the Lower Income Levels
10
3.
A Simple Impact Assessment Model
21
4.
Categories of Social Impact
33
5.
The Generic Social Impact Assessment Model
35
6.
Proposed Research Model
51
7.
Client Assessment Continuum
53
8.
Choice Points in Sampling Design
60
LIST OF APPENDICES
1. Interviewee Data Form English & Urdu
2. Calculation for KR-20 Formula and the Cronbachs Alpha
Microfinance & Poverty
Chapter 1
Introduction
1.1 Research Background

A loan to poor used to be an absurd concept. Millions of poor, vulnerable non-poor
and unbanked households want financial services. They seek a diverse range of
services including loans, savings, insurance, and facilities for sending and receiving
remittances. Households use financial services to build incomes, mitigate risk, and
protect against vulnerability often exacerbated by economic crises, illness, and natural
disaster. They invest in micro and small businesses, purchase assets, improve their
homes, and access health and education services. Yet formal financial intermediaries
like commercial banks generally do not serve these households.
Conventional banks have failed to serve this market for a variety of reasons. Firstly,
their business models are generally unsuitable for managing a microfinance business,
characterized by high-volume, low-value transactions. Secondly, they employ
traditional lending technologies based on collateral requirements (to which the
unbanked generally dont have access). And in many cases conventional banks
believe, unjustly, that the unbanked are unwilling and unable to repay loans and save
money.
In developing countries a large number of people do not have access to credit which is
perhaps main cause of poverty. Mani reasons behind that is inability to provide
collateral and high processing cost. (Hermes & Lensink, 2007).
Donaghue (2004) explains the contribution of financial services as a development
tool, gone through the evolution from subsidized loan to poor farmers, micro financial
institutions (MFI) providing loans to female borrowers and offering a range of

services including credit, savings and insurance to reduce poverty.
Microfinance emerged as a poverty fighting tool and its origin is often dated as late as
the 1970s. However, this concept was accomplishing some of the objectives in the
cooperative movements in the nineteenth century, in the rural finance experience postWorld War II and in the microenterprise development sector starting in the 1970s.
These diverse roots can be categorized in to five common objectives which include
microenterprise
development,
innovation/investment
promotion,
consumption-
smoothing, womens empowerment and financial systems development. The

wonderful feature of microfinance is that it can achieve all of these objectives
(Dunford, 2006).
The precedence for microfinance lies in the many traditional and informal systems of
credit that has existed in developing economies for centuries. Many of the current
practices are derived from community-based mutual credit transactions that were
based on trust, peer-based, non-collateral, borrowing and repayment (Hassan, 2002).
Hermes and Lensink (2007) identified that the idea of microfinance in terms of being
a tool for poor people has gained considerable importance during the last decade. The
evidence lies in the high accomplishment of Grameen Bank (Bangladesh) and Bank
Rakayat (Indonesia).
In 1983, Yunus formed Grameen (meaning "Village") Bank. Its business focused
entirely on providing very small loans to impoverished people, mostly women, who
organized themselves into small groups of five to help, reinforce, and supervise one
another. Loans were typically less than $80 for first-time borrowers, in contrast to
commercial loans that would typically be larger than $800. Before Grameen Bank,
moneylenders were the only source of finance for the poor, and they charged very
high interest rates. That not in absolute poverty could join credit cooperatives, but the
amount they could borrow was often too small to meet their needs. Conventional
banks were rarely an option since they required collateral, which most poor people did
not have, and they required a great deal of paperwork, which the poor often found
intimidating.
Bhutt & Tang (2001) have reported that;
The last decade has seen the evolution of microfinance institutions that have created
significant income and employment opportunities for the poor in developing
countries. In addition to reaching out to many disadvantaged micro entrepreneurs,
some programs have made significant strides in moving toward operational and
financial self-sufficiency.
Academicians and policy makers have given a lot of consideration to microfinance
recently. According to a statistic, there was 19.7% increase in microfinance
institutions and 119% increase in the number of borrowers only during the period of
1997-2005. Interestingly, more than 80% of the borrowers are women (Daley-Harris,
2006).
1.1.1 Defining Microfinance
There has been tremendous research and literature available on microfinance but still
there is no universally agreed definition of microfinance. To most, microfinance is the
provision of a broad range of financial services to those excluded from the formal
financial system. Systems of exclusion are not based just on lack of wealth but also on
social, cultural, and gender barriers.
Yunus (2006) looks at the concept from Grameens standpoint and uses a more lender
oriented approach by saying Microcredit is the extension of small loans to
entrepreneurs too poor to qualify for traditional bank loans. It has proven to be an
effective and popular measure in the ongoing struggle against poverty.
Delgado (2005) defines micro lending as;

Micro lending is the practice of extending small loans to the poor (also known as
micro-loans) for income-generating activities often coupled with other financial
services such as savings and insurance.
The provision of small loans (microcredit) to poor people to help them engage in
productive activities or grow very small businesses. The term may also include a
broader range of services, including credit, savings, and insurance.
While conventional banking offers loans to the poor, microfinance focuses lending to
the poor with no collateral requirement. Unlike government credit programs and
traditional bank credit programs that emphasizes large loans for long repayment
periods, microfinance provides small loans that are repaid within short periods of
time.
1.1.2 Microfinance and Micro credit
Microfinance is a broad concept of providing a web of different financial products
like loans, insurance, savings, home loans and funds transfer whereas, microcredit is
providing loans only. Hence, it can be stated that microcredit is just one ingredient in
the bowl of microfinance. Also, microfinance institution (MFI) may include different
activities like skill training, entrepreneurial education counseling on importance of
children education, improving nutrition choice and health (Grameen, 2008).
The importance of microcredit is also noted in the United Nations World Summit
Outcome Document, 2005, (The United Nations, 2005) which states that
We recognize the need for access to financial services, in particular for the poor,
including through microfinance and microcredit
The document stipulates that microcredit will help member countries achieve the
millennium development goals (MDGs) of reducing poverty rates by 50% by 2015.
Indeed, the year 2005 was declared the Year of Microcredit by the General Assembly
of United Nations.
Microfinance institutions provide a broad range of services including insurance, credit

finance and many more. In order to represent programme diversity, examples of
Bangladeshi MFIs can be placed on a matrix (Figure 1). On the horizontal axis is the
continuum between pure credit provision and broader financial service provision; on
the vertical access we find the continuum between only credit or finance, credit or
finance plus business-related services, and credit or finance plus social programmes.
Figure 1: Matrix of Microfinance (and related) Institutions in Bangladesh, 2006
Source: Based on Hulme and Moore 2006
1.1.3 Microfinance in Developing Countries

The last decade has seen the evolution of micro finance institutions that have created
significant income and employment opportunities for the poor in developing
countries. In addition to reaching out to many disadvantaged microentrepreneurs,
some programs have made significant strides in moving toward operational and
financial self-sufficiency. The superior performance of such programs as ACCION's
BancoSol in Bolivia, Bank Rakyat Indonesia's (BRI) Unit Desa program in Indonesia,
and the Grameen Bank in Bangladesh are frequently cited as evidence that it is
possible for microfinance institutions to make small loans to large numbers of poor
people in a sustainable manner (Bhutt & Tang, 2001).
It is important to state, that the term microfinance has been used interchangeably
with microcredit in Pakistan, largely because other services and products in the
sector have been far less developed than credit. Savings and insurance, for example,
are still in their infancy as far as their provision by microfinance institutions is
concerned, and even some microfinance banks have been slow to evolve their savings
instruments and potential (Zaidi, Jamal, Javed & Zaka, 2007).
The experiences of these and other prominent microfinance programs have triggered
replication efforts in one form or another worldwide--in countries ranging from
Bolivia, Peru, Mexico, and Costa Rica to Nigeria, Mali, Malawi, Togu, Chile,
Malaysia, Indonesia, Sri Lanka, Nepal, and India. The performance of most such
programs, however, has not been encouraging. Many have been plagued with such
problems as high default rates, inability to reach sufficient numbers of borrowers, and
a seemingly unending dependence on subsidies. Few of them have lived up to their
original objective of "including the excluded" (Bhutt, 2001).
There are both macro and micro factors that explain the low level of financial sector
development and performance in poorer countries. These include distortion in
macroeconomic policies, weak institutions, and inefficient markets characterized by
poor business practice. High rates of inflation, government deficits which crowd out
private borrowers, weak governance and institutional capacity, and an inadequate
contracting and information environment lead to a lack of resilience, balance and
variety, and discourage serving nontraditional segments. All these contribute to
broken financial sectors in many poorer developing countries, and they are at the
very root of why informality is still dominant there (Barthe, 2006).
In the long run, access to adequate and appropriate financial resources is critical in
solving societal problems such as illiteracy, poverty, lack of skill, inaccessible
markets etc. and the real issues that lie behind these issues: lack of political will and
leadership, lack of transparency, high graft and corruption, lopsided developmental
policies ... etc. Microfinance is indeed an essential ingredient in the development
process but not the only ingredient.
In Bangladesh Grameen Bank's positive impact on its poor and formerly poor
borrowers has been documented in many independent studies carried out by external
agencies including the World Bank, the International Food Policy Research Institute
(IFPRI) and the Bangladesh Institute of Development Studies (BIDS).
In Nepal, operations of existing MFIs have encountered certain problems on their way
in provision of rural financial services and specifically micro financial services.
Supremacy of government and its agencies in micro-credit, limited outreach in the
hilly areas sustainability and interest rate are the main reasons.
In India, microfinance does not directly address some structural problems facing
Indian society and the economy, and it is not yet as efficient as it will be when
economies of scale are realized and a more supportive policy environment is created.
MiBanco, Peru Accion Communitaria del Peru (ACP) was established as a non-profit
NGO in Peru with the major objective of community development. Initially, in 1980s
ACP was focusing on microcredit in the city of Lima only. But lately in 1985, ACP
was transformed in to a for-profit financial institution. Reason quoted for this
transformation was lack of access to capital and expansion of the institute in terms of
services.
As in much of the world, microfinance programmes are also growing in number and
size in transition economies. Since 1994, programmes have been operating in
economies as diverse as China, Albania and Russia. The principal objectives of the
programmes is to raise incomes and broaden financial markets by providing financial
services (principally credit) to small scale entrepreneurs who otherwise lack access to
capital markets (Morduch & Aghion, 2000).
1.1.4 Defining Poverty
While there is world-wide agreement on poverty reduction as an overriding goal of
development policy, there is little agreement on the definition of poverty and
definition of poverty does matter for poverty eradication strategies (Laderchi, Saith &
Stewart, 2003).
The condition of poverty has been interpreted conventionally as one of lack of access
by poor households to the assets necessary for a higher standard of income or welfare,
whether assets are thought of as human (access to education), natural (access to land),
physical (access to infrastructure), social (access to networks of obligations) or
financial (access to credit) (World Bank 2000).
Poverty is said to exist in a given society when one or more persons do not attain a
level of material well-being deemed to constitute a reasonable minimum by the
standards of the society (Ravallion, 1992).
Poverty is usually measured in absolute terms, providing a measurement of income or
expenditures in current terms to determine whether the household is poor.
Collectively, the poverty line in a country is the cutoff annual income below which
households are considered poor.
1.1.5 Microfinance and Poverty
Sometimes referred to as banking for the poor, Microfinance is not a magical silver
bullet that is going to change the world by itself but inside it, lies a solution to combat
poverty. Microfinance is providing a stable income which may be repaid in six
months and then taking another small loan which turns into the social uplift. This
improvement can be depicted in the improvement of housing conditions like moving
from a house made of mud to one made of wood or advancement in nutrition and
children education.
Rubana (2008) explains that microfinance has surfaced out as an efficient
development strategy and has significant policy implications in terms of eradicating
poverty and accomplishing MDGs.
Experience shows that microfinance can help the poor to increase income, build
viable businesses, and reduce their vulnerability to external shocks. It can also be a
powerful instrument for self-empowerment by enabling the poor, especially women,
to become economic agents of change. Surely, one cannot deny the role of
microfinance in poverty reduction as it raises income and consumption of poor
households (Khandker, 2005; Copestake, Dawson, Fanning, McKay, & WrightRevolledo, 2005).
Poverty is multi-dimensional. By providing access to financial services, microfinance
plays an important role in the fight against the many aspects of poverty. For instance,
income generation from a business helps not only the business activity expand but
also contributes to household income and its attendant benefits on food security,
children's education, etc. Moreover, for women, who, in many contexts, are secluded
from public space, transacting with formal institutions can also build confidence and
empowerment.
Recent research has revealed the extent to which individuals around the poverty line
are vulnerable to shocks such as illness of a wage earner, weather, theft, or other such
events. These shocks produce a huge claim on the limited financial resources of the
10
family unit, and, absent effective financial services, can drive a family so much
deeper into poverty that it can take years to recover.
Having said that poverty is a multidimensional and multifaceted concept, it is
important to specify those dimensions which a particular research is targeting.
Indexed Based Ranking (IBR) Indicator (Arun, Imai & Sinha, 2006) a composite
indicator that includes various aspects of welfare, possession of land, number of
salaried persons, livestock, assets, housing, and sanitation facility has been taken for
this research for measuring poverty.
Following figure shows the wealth pyramid, numbers of people and their annual per
capita expenditures are taken from VISA International and The World Bank. The
solid horizontal line approximates an international poverty line.
Figure 2: Microfinance Can Reach the Lower Income Levels
11
As it is obvious from the figure, commercial banks reach the top pyramid. Credit
unions through their cooperative principles and low cost have been successful in
serving the lower strata of pyramid but were unable to reach the international poverty
line. It is generally agreed that financially sustainable microfinance operations reach
the near poor and the upper poor. Further down the pyramid, there is The Question
(symbolized by the dotted-line arrows from microfinance on Figure 2) about the
sustainability and impact of microfinance when offered to large numbers of the
poor, especially those living on the borderline of destitution; that is, those living on
a dollar a day or less (Dunford, 2006).
1.1.6 Poverty in the Global Perspective
Millinium Development Goals (MDGs), stated by the World Bank that all the
countries have agreed to achieve by 2015 are:
To eradicate extreme poverty and hunger; to achieve universal primary education; to
promote gender equality and empower women; to reduce child mortality; to improve
maternal health; to combat HIV/AIDS, malaria and other diseases, to ensure
environmental sustainability and develop global partnership for development.
Speakers at the meeting insisted for provision of education to women and more
emphasis on fund allocation especially in health sector so that each one, particularly
those living in the remote rural areas could have access to the proper health care
facilities. They were disappointed about the proper utilization of funds allocated for
the social sector development (Dawn, 2005).
Donor agencies are orienting their programming around the attainment of the
millinium development goal and are mobilizing new resources to reduce hunger and
poverty, eliminate HIV/AIDS and infectious diseases, empower women and improve
12
their health, educate all children, and lower child mortality (Littlefield, Morduch &
Hashemi, 2003).
1.2 Microfinance in Pakistan
Recognizing the importance of microfinance as a tool of poverty reduction and social
mobilization, the Government of Pakistan has accelerated its efforts to establish
strong foundations of microfinance in the banking sector; The Khushhali Bank was
established as the first specialized microfinance bank (MFB) in 2000.
Less than a year later, a wholly separate regulatory framework for State Banklicensed microfinance institutions was promulgated the Microfinance Institutions
Ordinance, (MFI)2001. As a result, during the last six years, six MFBs have started
operations. Besides Microfinance Banks, other types of institutions such as
specialized microfinance institutions, NGOs rural support programs and commercial
financial institutions are also actively involved in the provision of microfinance in
Pakistan. In order to facilitate these non-bank microfinance providers, the Pakistan
Poverty Alleviation Fund (PPAF) was established in 1999 as a distributor/wholesaler
of credit to non SBP-regulated micro financial providers.
The Pakistan Microfinance Network (PMN) is an association of organizations
engaged in microfinance and dedicated to improving the outreach and sustainability
of microfinance services in Pakistan. PMN and its members are working together to
broaden access to financial services for all and create opportunities for the progress
and prosperity of poor people.
Recently, SBP through an amendment has allowed micro-finance banks to issue termfinance certificates for meeting the 15% capital adequacy requirement. World Bank
reported that Poverty Alleviation Fund (PPAF) Program in Pakistan, initiated seven
years ago is achieving the desired objectives. Number of micro-finance provided has
13
increased from 60,000 borrowers to 1.5 million. The average size of a loan is $ 150
and has benefited 9 million people in 111 districts across the country (Saleem, 2008).
The governments Poverty Reduction Strategy Paper (PRSP) articulated in 2003, and
its Medium Term Development Framework 2005-10 (MTDF), both address the key
problem of poverty in the country and consider microfinance as a critical tool to make
progress in all three areas mentioned above for excellent background studies on the
microfinance sector in Pakistan in recent years, see in particular, Hussein & Hussain
(2003).
Besides the enormous growth and growing potential for the microfinance industry in
Pakistan, there are number of challenges which practitioners are facing. The outreach
of these institutions has grown, albeit at a slow rate, and the numbers and
beneficiaries remain much below our requirements (Choudry, 2008). Following table
shows list of some of the challenges:
Table 1. Challenges Faced By Microfinance Industry in Pakistan
S. No
Challenges
Limited Market Outreach
Lack of Government Commitment for Microfinance Development
Legislation and Regulation
Absence of Savings Deposit
Limited Products and Services
High Cost Factor and high interest rates
Weak Capacity and Inefficiency of NGO MFIs
Obstacles for Microfinance Outreach to Women
Absence of Risk Mitigation Measures
Source: Based on Choudry 2008
14
Salient features of the microfinance industry in Pakistan are a massive upfront

investment, investment initiating growth, globally competitive credit delivery costs,
solid loan repayment for most institutions, insufficient revenue generation to cover
costs, lack of movement towards sustainability (Burki, 2006).
1.3 Identification of the Knowledge Gap
Three issues are of importance when impact of microfinance is discussed:
First, which contribution is seen as the most important (improvement of income,
accumulation of assets, empowerment of women, etc); second, does microcredit reach
the core of the poor or does it predominantly improve income of the better-off poor;
and third, do the benefits outweigh the costs of microfinance schemes (Dunford,
2006).
Small amounts of microfinance loans are not enough to produce significant income to
meet interest expense and this problem magnifies further when we talk about rural
population (Scully, 2004).
The problem magnifies further when researchers have the limitations about the
literature on Impact Assessment Methodologies. Most of this literature underscores
the pitfalls of undertaking studies in which an attempt is made to observe, leave alone
quantify, the impact of any intervention in order to address poverty. Impact
Assessment (IA) experts caution researchers about making grand statements and
reaching final conclusions which are based on quantification of too many measurable
(Zaidi et al, 2007).
It has been observed that amongst the academic development community there is
recognition that perhaps we know much less about the impact of these programs than
might be expected given the enthusiasm for these activities in donor and policymaking circles (Weiss & Montgomery, 2005).
15
There has been a discussion about the transaction cost of microfinance which is a big
question mark on the sustainability of microfinancial institution. Latest research
reports that most microfinance programmes are lacking financial sustainability and
they are sill dependent on the donor agencies in order to bear the high cost (Cull, Kunt
& Morduch, 2007).
Despite the fact that donors eagerness about microfinance program, there is a huge
gap for thorough research on the impact of microfinance, cost effectiveness and
outreach. Research is greatly required to tackle the issues of selection and placement
biases (Weiss & Montgomery, 2005).
1.4 Research Objectives
The objectives of this study are:
1. To assess and analyze the impact of microfinance at household level such as
household welfare (children education, housing and food security), households
expenditure and household assets.
2. To assess and analyze the impact of microfinance at enterprise level, such as
financial performance, enterprise resource base and income smoothening.
3. To identify the degree to which demographic (age, education, gender) and other
independent variables such as, number of households, number of salaried persons
and type of area can affect the impact of microfinance at household level.
4. To identify the degree to which demographic (age, education, gender) and other
independent variables such as, number of households, number of salaried persons
and type of area can affect the impact of microfinance at enterprise level.
5. To propose and test a model of impact of microfinance at household and
enterprise level to see impact of poverty.
16
1.5 Significance of the Study

An impact evaluation perform dual tasks, first is that it helps to identify whether the
program has any significant positive impact on clients or not; secondly, impact
evaluations offer vital information about the prospective products and services that
could satisfy the needs of clients.
In addition to this impact evaluations provide grounds for donors and government
whether to promote the existing program or not (Snodgrass & Sebstad 2002).
Results of best practicing MFIs can become the benchmark for rest of other MFIs plus
it will give light to the policy makers for decision making for the future (Karlan &
Goldberg, 2007).
However, amongst the academic development community there is recognition that
perhaps we know much less about the impact of these programs than might be
expected given the enthusiasm for these activities in donor and policy-making circles
(Kurmanalieva, Montgomery, & Weiss, 2003).
To quote a recent authoritative volume on micro finance.
MFI field operations have far surpassed the research capacity to analyze them, so
excitement about the use of micro-finance for poverty alleviation is not backed up
with sound facts derived from rigorous research. Given the current state of
knowledge, it is difficult to allocate confidently public resources to micro-finance
development (Zeller & Meyer, 2002).
17
1.6 Statement of the Problem

The focus of this study is primarily on impact of microfinance at household and
enterprise levels. This research addresses the following questions.
1. Is there a difference between new clients and established clients of
microfinance at household level, such as household expenditure, household
assets, housing, children education and food security?
2. Is there any difference between new clients and established clients of
microfinance at enterprise level, such as financial performance, income
smoothening and enterprise resource base?
3. Is there any significant difference between new clients and established clients
with respect to gender, age, education, number of households, number of
salaried persons and type of area?
1.7 Expected Contribution of the Study
Present study identifies a gap in existing research and contributes to existing literature
as follows:
1. Although microfinance was a buzz word in terms of a tool for poverty reduction,
prior literature about microfinance and poverty is lacking empirical research.
Major dilemma is how to measure the involvement of microfinance (Dunford,
2006).
This study is first of its kind of empirical research which is highlighting the
ground realties in Pakistan, offering important contribution for underscoring these
impacts at household and enterprise levels, therefore contributing to the body of
knowledge.
2. There is need of high quality impact assessment studies to understand the role of
microfinance in eradicating poverty especially in different environments to give
direction to microfinance institutions (Kurmanalieva et al, 2003).
18
Despite the fact that microfinance has proven as an anti-poverty tool, but extant
research conclude that there is need of rigorous research to understand the
overoptimistic views of impact of microfinance in the right direction (Hermes &
Lensink, 2007).
3. At evaluation level, many questions remain to be answered concerning the impact
of microfinance on the different dimensions of poverty and the trade-offs between
these dimensions as stressed by Morduch (2000) and World Bank (2000). As long
as these questions remain unanswered the appropriate design technology for
microfinance and other instruments of poverty reduction themselves remain open
questions. These questions can best be answered only when some dimensions of
the poverty are chosen and other than the program participation, role of other
independent variables which have an impact on well being of the clients is studied
in-depth, hence this study offers substantial contribution as it addresses the role of
other independent variables.
4. Rigorous research is needed in neighborhood of developed countries such as
United Sattes, where there is high income inequality. It would be beneficial to
know about the contribution of microfinance in terms of improving the life styles
and eradicating poverty in those poor countries that are stuck in the vicious circle
of poor systems of education, high unemployment rates, malnutrition and the
worst living conditions (Gibb, 2008).
5. Despite a multitude of studies devoted to the topic, it is interesting to note that
literature on impacts of microfinance on the poor in developing countries is
debatable, since it is presenting mixed evidence. Finding of some studies are
positive and extremely convincing (Hossain, 1988; Wahid, 1993; Yaron, 1994)
whereas some studies find negative impacts (Morduch, 2000, Weiss &
Montgomery 2005). Again, few other studies have shown positive impacts in
some areas and no impacts in other areas (Sebstad & Chen, 1996).This research
19
attempts to uncover these impacts at household and enterprise levels with

reference to the Pakistan and would try highlighting important implications for
rest of the developing countries.
6. A review of the micro-finance sector in Pakistan reveals that the interest in
assessing the widespread impact of micro-credit on poverty is a relatively recent
phenomenon and that almost all the major studies in this regard were undertaken
after 2000. (Hussein & Hussain, 2003). It was therefore imperative to study this
area that has a distinguished contribution for achieving MDGs.
7. There has been a lack of empirical research to truly support the claims of overly
optimistic opinions about the wonders of microfinance. Present study is trying to
cover the gap. This is the first study of its kind and scale in Pakistan that attempts
to quantify and demonstrate some of the outcomes from microfinance
interventions. Present study has adopted a tool developed by Assessing the Impact
of Microenterprise Services (AIMS) and Small Enterprise Education and
Promotion network (SEEP). However, it was developed further to incorporate
cultural diversity by adding few items where necessary.
8. In particular the model is extended to incorporate both household and enterprise
level outcomes as a means to alleviate abject poverty. The evidence on the impact
that how does it affects the welfare of household (in terms of poverty) and
enterprise has been explored. Further, the study underscores the issues of role of
other independent variables i-e gender, age, education, number of households,
number of salaried persons and type of area on the microfinance intervention.
20
Chapter 2
Review of Literature
2.1 Theoretical Underpinnings

This chapter presents an overview of extant research on impact assessment studies.
The objective of this chapter is to review important impact assessment studies being
conducted in various parts of the world and its significance for the microfinance
institutions, practitioners, policy makers donors etc. Second objective is to investigate
the methodological flaws that come in the way of conducting impact assessments.
Third objective is to build up a strong base for theoretical framework for this research.
Microenterprise development and impact assessment (IA) can not be separated
nowadays. All the stakeholders which include practitioners, industry, donor agencies,
policy makers and of course researchers have interest in such studies. It becomes the
obligation for MFIs to prove that funds have been spent to attain the primary objective
for which they have been working. Also, practitioners would like to get feed back
about their product and services whether they are meeting the clients needs
satisfactorily. (Nelson, 2000).
Microfinance programs typically target the poor. Barnes (2001) found that MFI
programs are targeting and giving benefits to low-middle income micro entrepreneurs.
To quote the director of a large Asian microfinance institution that has received
substantial amounts of aid financed impact assessment (IA) consultancy and internal
IA-capacity building
...impact assessment studies keep donors happy... we dont use them very much.
21
That is why it is becoming important to study the impacts of these microfinance

programs on the lives of the poor. It is important from the point of view of
stakeholders who are also getting benefit from it. For this matter impact studies are
conducted. Several studies in the developing countries have been conducted and the
purpose remain the same i-e what impact these studies have on poor in terms of their
social and economic well being. The main goal of IA methods is to investigate the
attribution of changes in target client well being to microfinance intervention (Pawlak
& Matul, 2004).
Monitoring tools like CGAPs Poverty Assessment Tool, Cashpore Housing index,
SEFs Participatory Wealth Ranking, and USAIDs AIMS Tools have been successful
to reveal the impact on clients and outreach in the past few years.
These tools have been found to be practical in terms of ease of use and yield useful
information to donors (Morduch & Haley, 2001). A simple impact assessment model
has been shown in the Figure 3.
Figure 3. A Simple Impact Assessment Model
External Factors
Agent or
Program
Impacts
Mediating
variables
Source: Learning from Clients: Assessment Tools for Microfinance Practitioners

Mediating variables explains all those factors that are not directly associated with the
program but can improve or limit the change. Examples are gender of the client,
number of households etc. External factors might cause certain change exclusive of
22
the program itself. Examples are change in income of the household not due to the
clients activities.
2.1.1Types of Impact Assessment
Sharma (2000) explains two kinds of impact assessment are investment led and
insurance led are usually conducted. Investment led seeks to determine the return on
investment in terms of income, consumption and wealth. Insurance led target to
explore whether access to credit has provided any stability in the events of unexpected
income (bad harvest) and expenditure shocks (health emergencies).
Karlan & Goldberg (2007) explained three types of impact evaluation. First, and
perhaps most importantly, program evaluation refers to examining whether a
particular microfinance institution is effective or not in improving the welfare of its
clients. Second, product or process evaluation refers to evaluating the relative
effectiveness for a particular microfinance institution in implementing one product
versus another, or one process versus another. Third, policy evaluation refers to
macro level policies for example banking regulations etc.
2.1.2Challenges of Impact Evaluation
Abundant studies have demonstrated the effectiveness of microfinance to alleviate
poverty in various regions of the world. An important reason put forward is that its
impact goes far beyond business loans since access to financial services is a
fundamental basis for the other interventions to alleviate poverty. Improvements in
health care, nutritional advice and education can be sustained only when households
have increased earnings and greater control over financial resources (Kulik &
Molinari, 2004).
Impact evaluations can be used either to estimate the impact of an entire program or
to evaluate the effect of a new product or policy. In either case, the fundamental
23
evaluation question is the same: How are the lives of the participants different
relative to how they would have been, if the program, product, service or policy was
not implemented? The first part of that question, how the lives of the participants are
different, is the easy part. The second part, however, is not. It requires measuring the
counterfactual, how their lives would have been had, if the policy was not
implemented. This is the evaluation challenge (Karlan & Goldberg, 2007).
Despite the impressive impacts of microfinance services on poverty, health, and
empowerment, the development community realizes other services and strategies
besides credit must be made available to create a web of support to help families lift
themselves out of poverty (Watson & Dunford, 2006).
Bowen (2007) clarifies that MFIs should go beyond providing micro-credits only,
since effectiveness largely depends on the broad range of services including
insurance, savings and home loans etc.
Hulme (1997) describes that besides impact assessment design, its implementation is
even more challenging. Main problems are interviewer quality, interviewees
motivations and cost.
Self Selection Bias
True researcher on the impact assessment looks at the research design chosen to
conduct the study. Although number of studies have been conducted on the impact
assessment but the problem of selectivity bias pops out as one of the major problems.
Perhaps the most difficult issue a researcher has to address in an impact study is to
sort out whether wealth is created due to the program participation or participants
were already relatively wealthy when they joined the program, known as selection
bias. Hulme (1997) explains that location of the program plays a significant role in the
success of a program and can be one of the selection biases.
24
Selection bias may occur because of the following reasons:

a. Difficulties in finding a location at which the control groups economic, physical
and social environment match that of the treatment group;
b. The treatment group systematically possessing an invisible attributes which the
control group lacks (most commonly identified as entrepreneurial drive and ability);
c. Receiving any form of intervention may result in a short-term positive response
from the treatment group (the Hawthorne effect);
d. The control group becoming contaminated by contact with the treatment group
(Though this could be a long term program goal!); and
e. The fungibility of the treatment (e.g.; when a loan is transferred from a borrower to
someone else or when the loan is not used in the planned way).
By ensuring that control and treatment groups are far apart. Problems (b) and (c) are
more challenging but can be handled by using the control group of prospective clients.
(Hulme & Mosley 1996).
One of the most widely cited impact assessments, by Pitt and Khandker (1998), use
the World Banks data set from three MFIs in Bangladesh and a combination of
survey design and intricate econometric techniques (Weighted exogenous sampling
maximum likelihood, Limited information maximum likelihood and village fixed
effects, or WESML-LIML-FE) to tease out gender differentials in program impact.
They do find that credit to women has a larger impact than credit provided to men for
a number of impact variables, including labor supply, childrens education and
household expenditure (Alexander, 2006).
Hermes & Lensink (2007) quotes that
The main problem with lending to the poor is that information costs are high as
compared to the size of the loan. It is generally known that information costs of
25
lending may be high since lenders are not able to distinguish projects with respect to
their risk profiles when allocating credit (adverse selection problem) and borrowers
may be able to apply the funds to different uses than those agreed upon with the
lender.
Program Placement
In order to confront the program placement problem, idea is to do randomized
selection from large number of possible sites. It is assumed that program sites are very
likely to be similar to the non-program sites. Difference in the wellbeing of two
groups over time can be considered the contribution of program.
(Dunford, 2006).
Not will be out of place recording a summary of different impact studies conducted in
different countries during the decade of 1995-2007 in table 2.
26
Table 2. Summary of Impact Assessments (1995-2007)

Year
MFI/Country
Title
Authors
Study Setting
Results
1995
BRAC
Bangladesh
Do Poverty Alleviation
Programmes Reduce Inequity in
Health: Lessons from
Bangladesh,
A.M.R.
Chowdhury and A.
Bhuiya
Positive impact was

experienced as the member
joined and stayed with the
microfinance program
1996
15 countries
from Asia, 10
from Africa, 3
from Latin
America, 4
Overviews of studies on the

impact of micro enterprise-credit
Jennefer Sebstad
and Gregory Chen
Longitudinal research
(1992-1995) basic
competency in reading,
writing, and arithmetic
among children 11-14
years old was studied to
compare the impact of
program
Mixed-method
approach, using surveys
and Case study
1996
Mk Nelly et al
Non participants in non

program villages used
as control
Mahabub Hossain
and Catalina P.
Diaz,
Older borrowers were

compared with new
borrowers
Jonath Morduch
Relationship between
microfinance and
childrens schooling
was studied for
participants and nonparticipants of the
program.
Cross-sectional design
Thailand
1997
CARD,
Philippines
Reaching the Poor with

Effective Microcredit:
Evaluation of a Grameen Bank
Replication
in the Philippines
1998
Grameen Bank
Bangladesh
Fighting Poverty with

Microcredit, a study conducted
by World Bank
1998
Grameen Bank
Bangladesh
Does microfinance really help

the poor? Evidence from
flagship programs in
Bangladesh
Sample size
Positive effects on
household production and
incomes, asset
accumulation and
consumption
Positive benefits, but no
statistical tests for
difference reported
Income from older

borrowers micro
enterprises was 3.5 times
higher than newer
borrowersenterprises, and
older borrowers also
increased income from
other sources.
Higher levels of schooling
for children of all credit
program participants and
statistically significant
higher rates of schooling
for girls in Grameen
households was found
Households having access
and eligible to borrow
donot have notably higher
consumption and impact
on education than control
households
Variables
tested
Subject
type/Respondents
Household,
enterprise and
individual level
indicators
1800
households
Household
consumption
and Education
Control and treatment

group

BRAC,
Bangladesh
Poverty Alleviation and

Empowerment: The Second
Impact Assessment Study of
BRACs Rural Development
Programme
M. Muazzam
Husain
Compared participants
of microfinance
programs with the
nonparticipants
1999
CRECER
Bolivia
Impact of Credit with

Education on Mothers and Their
Young Childrens Nutrition:
CRECER Credit with Education
Program in Bolivia
Barbara MkNelly
and Christopher
Dunford
Before and after

comparison
1999
Peru
Lima
Microfinance clients in Lima,

Peru: Baseline Report for AIMS
core impact assessment
Elizabeth Dunn
Longitudinal
1999
Indonesia Bank
Rakayat(Island
of Lombok)
Gender, self-employment and

literate programs an Indonesian
case study
Rosintan D.M.
PanjaitanDrioadisuryo,
Kathleen Cloud
Compared treatment
group and control group
1999
Thialand
The impact of group lending in

northeast Thailand
Brett Coleman
No evidence of program
impact on assets or income
variables
2001
Bangladesh,
BRAC
Assessing the poverty and

Vulnerability Impact of MicroCredit in Bangladesh: A case
study of BRAC
Hassan Zaman
Comparison between
participants and nonparticipants households
and villages where
programs introduced
and villages where not
yet introduced
Before and after
comparisons
2001
SHARE, India
(Andhra
Pradesh)
Paths out of Poverty: The

Impact of SHARE Micro fin
Limited in Andhra Pradesh,
India
Helen Todd
Todd created a poverty

index composed of four
elements: sources of
income; productive
assets; housing quality,
1998
Participants changed in a
positive direction, being
the longitudinal study,
provided pretty good
evidence for impact as
compared to the first
impact.
Eighty-six percent of
clients said their savings
had increased; 78 percent
did not have any savings
prior to program
participation.
Households receiving
program credit have
incomes above the poverty
line, and are building
themselves through
entrepreneurship
Positive impact on
household income,
involvement in decision
making, nutrition and
childrens education
27
701
entrepreneurial
households
Household and
entrepreneurial
level
Clients vs non-clients
215, 121
treatment and
94 control
group
Household
income,
involvement in
decision
making
nutrition and
childrens
education,
participation in
household work
Treatment and control

group
Results show that

microcredit can diminish
vulnerability by women
empowerment, asset
accumulation and crisis
coping mechanisms.
1072
Education,
awareness to
social issues,
control over
assets
Treatment and control

group
Dramatic differences
between mature and
incoming clients boys, the
study found no relationship
between poverty status and
229
respondents
125 share
clients 104 new
clients
Income, assets,
education,
housing
Mature and incoming

clients

as measured by the
SML House Index and
household dependency
burden
2001
Bangladesh
Does Micro-finance Really

Benefit the Poor? Evidence from
Bangladesh. Reforming Policies
and
Institutions for Poverty
Reduction held by the Asian
Development Bank. Manila.
Khandker, Shahid.
A longitudinal study
was conducted in 91/92
and 98/99 to check the
impact.
2001
Foundation for
Credit and
Community
Assistance
Uganda
Uganda
2001
India
Managing Resources, Activities,

and Risk in Urban India: The
Impact of SEWA Bank
Martha A. Chen
and Donald
Snodgrass
Longitudinal research
(1997-99)
2001
Zimbabwe
(Harare,
Chitungwiza,
Bulawayo and
Mutare)
Microfinance Program Clients

and Impact: An Assessment of
Zambuko Trust, Zimbabwe
Carolyn Barnes,
Impact of microfinance
program on nutrition
choice was observed
1997-1999
2001
Peru (Lima)
The Impacts of Microcredit: A

Case Study from Peru
Elizabeth Dunn
and J. Gordon
Arbuckle Jr.,
1997-1999
701 respondents in 1997
and 529 in 1999
2002
Thialand
(Village
Northeast
Thialand)
Microfinance in Northeast
Thialand: Who benefits and how
much?
Brett E. Coleman
It controls for
endogenous selfselection and program
placement, using data
from a unique survey
conducted in 1995-1996
Cross sectional
school attendance, but for

girls there was a negative
relationshippoor clients
were more likely to send
their girls to school.
Results clearly reveal that
there was a positive change
the poverty during 91/92
and 98/99. There was an
improvement in income,
expenditure and household
net worth.
95% of clients improved
health and nutrition
practices for their children,
as compared to non-clients.
Also, 32% of clients had
tried at least one AIDS
prevention practice,
compared to 18% for nonclients
Positive impact on housing
and business food, fixed
assets, self esteem,
confidence, economic
decisions and personal
savings
It led to a positive impact
on the consumption of high
protein foods (meat, fish,
chicken, and milk) for
extremely poor client
households.
found Mibanco clients
earned $266 more per
household member per
year than non-participants
Results demonstrate that
microfinance loans
positively affect many
measures of household
welfare for the wealthy
committee members, but
the impact is largely
insignificant for
Poorer rank and file
members
28
87 villages with
2599
respondents
Household
Income and net
worth
Program participants,
target non-participants
and nontarget group
900
Housing,
business, food,
medical, fixed
assets, personal
savings
Poor women
Income,
education.
Food,savings
Mostly female, and

married having at least
one enterprise
Wealth,
employment,
household
savings,
household
expenses,
health care and
education
Household participants
579
respondents:
338 clients and
241 non clients
445 households
(14 villages)

2003
The Activists
for Social
Alternatives
(ASA), India
ASA-GV Microfinance Impact

Report 2003,
2004
India
2004
Kashf, Pakistan
Small Industries Development

Bank of India
(SIDBI), India a study
conducted by EDA Rural
Systems Private Ltd., Gurgaon,
India in collaboration with
Institute of Development Policy
and Management (IDPM), U.K,
Impact Assessment of Kashfs
Microfinance and Karvaan
Enterprise Development
Programme
2004
India
2005
2005
Helzi Neponen
The Internal
Learning System (ILS).
Was used in which
literate clients can keep
track of the changes in
their own
living situations, and
members crosscheck
each others reports for
accuracy.
The two-stage
longitudinal socioeconomic research from
April 2001 April 2004
Older member improved

on their housing, food,
nutrition and education as
compared to the new
members
Arjumand and
Associates,
consultants
Clients vs non-clients
were compared for
poverty longitudinal
was followed
Clients increased their

income as compared to non
client The poverty rate was
decreased by 20 percentage
points
Impact of Microfinance
Programs on Childrens
Education
Do the Gender of the Borrower
and
the Delivery Model Matter?
Nathalie Holvoet
Interviews from clients.
Analysis indicates that

combined financial and
social-group
intermediation leads
to higher educational
inputs and outputs, mainly
for girls.
Khushhali
Bank, Paksitan
Meeting the Double Bottom

Line The Impact of Khushhali
Banks
Microfinance Program in
Pakistan
Montgomery, H.
Moris Rasik,
Timor Leste,
Indonesia
Moris Rasik: An Interim

Impact Assessment
David Gibbons
It keeps records of the

poverty status of each
client at the time of
Positive impacts were

found on education,women
empowerment, income
generating activities,
decision making and
increased mobility.
Both access to and

participation in the
program had strong
positive impacts on all
variables tested for income
generation. She showed
that as the number of loan
cycles increased, assets in
terms of amount of land
cultivated, value of farm
equipment, and hours of
tractor use increased
significantly
Results shows that 54% of
Very Poor clients
experienced a decline of at
29
2005
Local
Initiatives
Project, Bosnia
and
Herzegovina
Impacts of Microcredit on
Clients in Bosnia and
Herzegovina
2005-2006
Japan (Laos)
Impact of microfinance on
Household welfare
2007
Philippines
(Barangay)
Impact of Microfinance on
Rural Households in the
Philippines; A Case Study from
the special Evaluation study on
the effects of microfinance
operations on poor rural
households and the status of
women
Source: Developed
Elizabeth Dunn,
entry into the program;

thus progress, in terms
of poverty can be
measured
Clients and non-client
entrepreneurs were
interviewed using the
longitudinal research
design
least one category of

poverty since
joining
Client households
increased their income
more than non-client
households. New clients
did even better. Increase
in the employment and
wages of non-household
employees, but only
among the newest clients
Longitudinal/cross
sectional
Toshio Kondo
Longitudinal
Quasi-experiment
30
Positive impact on per

capita income, savings,
food, employment, fixed
assets, livestock and
poultry and household
appliances
2000 clients
and 1,200 noclients
Annual per
capita income,
poverty level of
household,
improvements
in business
premises and
investment in
equipments
Clients, nonclients and

new clients
251 households
in six villages
Income,
expenditure,
savings, health,
empowerment,
education,
assets
Per capita
income,
expenditures,
savings, and
expenditure on
food, education,
household
appliances &
assets
Old saving groups, new

savings groups, and
control savings groups
2200 household
& 28 MFIs
Households participants
and nonparticipants
31
2.2 Conclusion of Impact Assessment Studies

As it is evident from the table 2, evidence is mixed; most of the studies conducted before
2000 reveals a significant positive impact in terms of increase in household savings,
income, and improved choice on nutrition, education, health and schooling for those
who participated in the program. Similarly, strong positive impacts on women both
interms of economic and social empowerment (in terms of ability to access loans, own
productive resources, engagement in income generation activities, decision making and
increased mobility) have been observed through participation in the program. However,
some of the studies report negative or no impact. Interesting evidence came from one
study conducted at India, which reported a negative relationship for enrollment. Poor
clients were more likely to send their girls to school.
Many MFIs around the world such as Grameen Bank, Bangladesh Rural Advancement
Committee (BRAC) in Bangladesh, Bank Raykat Indonesia (BRI) and the BancoSol in
Bolivia have reported significant positive impacts on the lives of poor in terms of
household expenditures, children education and health, accumulation of household assets
(Chaves & Gonzalez-Vega, 1996; Hashemi & Schuler, 1994; Hulme & Mosley, 1996;
Khandker, 1998). Few more positive impacts were found in the impact assessment
studies (Goetz & Sen Gupta, 1996; Meyer, Gonzalez-Vega, & Rodriguez-Meza, 2000;
Mosley, 2001; Navajas, Schreiner & Rahman, 1998).
Results of a study by U.S Agency for International Development of three microfinance
organizations in Uganda shows that microcredit has helped to improve the lives of the
poor (Baido, 2008).
32
There has been found a positive change in the literacy rates of children of BRAC clients
from 1992 to 1995. Statistics show that improvement was 12 to 27 percent in three years
(Chowdhury & Bhuiya, 2001).
One study from Indonesia shows that credit contributes to increased expenditure on
education; another from Kenya shows that program borrowers are more likely than a
control group to spend a portion of their enterprise profits for school fees (Sutoro 1989;
Buckley 1996). But the findings from other studies are less positive. Pitt and Khandkars
Bangladesh study shows that, overall, credit has an impact on boys schooling but not
girls.
While the huge potential of microfinance is always acknowledged, studies on the impact
of microfinance conclude that it is unclear whether microfinance contributes to a
reduction in poverty or is the most efficient method to reduce poverty without additional
measures in areas such as education, health and infrastructure. Moreover, it is recognized
that impact takes some years to work its way through into the lives of beneficiaries, and
contradictory or mixed results are not uncommon (Zaidi et al, 2007).
2.3 Social Impact of Microfinance
Utilization of microfinance loans lead to a higher and better diversified income situation
and ability to survive in the periods of reduced income levels. These impacts can be
experienced at personal/household level, local community level and regional level.
33
Figure 4. Categories of Social Impact
Source: Adapted from Social Investment Services AG: www.responsAbility.ch

Personal/Household level
At this level the following effects can take place:
Empowerment of women, who are often, preferred clients of MFIs. This can lead to a
higher social status, better education and more independence of women.
Better education in acquiring basic skills and financial knowledge.
Ability to cope with economic shocks by means of savings, credit, micro insurance
products.
Better access to education, healthcare, sanitary infrastructure, food supply etc.
All the above mentioned impacts have been found as poverty indicators which is very
essential part of this research. Other two impacts are wider impacts at local community
and regional levels. It includes creation of jobs, higher and more stable income increased
trade with neighboring communities and regions improving the economic base and
34
resilience at local levels. Strengthening of the microenterprise and Strengthening of the

financial sector as a whole, widening its scope and outreach are some of the impact at
regional level.
Social performance is not equal to social impact, i.e. social performance is about
investigating the structure of an organization which include mission, and management
practices etc. its conduct in the market and local and wider community. Thus, social (and
economic) performance precedes social (and economic) impact (Zeller, Ccile, & Martin
2003).
This can be better understood with the help of following:
Structure
Conduct
Performance
Impact
(on
clients/non-clients, communities etc. in many dimensions)
2.4 Generic model of Social Impact Assessment

Ghalib (2007) explains the social impact on lives of the poor by means of a standard
model. This is sort of an experimental design which consists of a control group and a
treatment group.
Treatment group is exposed to microfinance intervention whereas
control group is not, assuming that both the groups are living in the identical economic
and social conditions. The difference in the quality of lives, in terms of social indicators
is considered the impact of microfinance. Since social impact is a complex process and
number of other factors will contribute to the model.
Figure 5 graphically explains the social impact of microfinance.
Figure 5. The Generic Social Impact Assessment Model
Source: Ghalib, 2007
35
36
Chapter 3
Conceptual Framework
The previous two chapters discussed the existing studies in order to establish a
conceptual framework and to build a foundation for hypothesis development. The first
objective of this chapter is to propose hypotheses based on the previous studies of impact
assessment in order to find out how microfinance is helping to improve lives of clients at
enterprise and household level. The second objective is to develop a model to assess the
impact of microfinance using household welfare, household assets and household income
at household level and by taking income smoothening, financial performance and
enterprise resource base at enterprise level. Demographic variables such as gender, age,
education, number of households and number of salaried persons were taken for analysis
purpose.
3.1 Research Design
The first step in designing a quantitative survey is to conceptualize the impact chain to be
examined. It should specify the unit(s) of analysis to be assessed (e.g., household,
individual, enterprise, community) and the types of impacts to be studied (Hulme, 1997).
Although there has been abundant literature and research available on impact of
microfinance, practitioners have been experiencing the methodological flaws in the
impact studies since long. The most difficult issue in the impact studies has been to find
out that whether the impact was due to microfinance alone or there were certain other
economic level activities in the area which were ostensible in poverty reduction.
37
Even when clear evidence of impacts is obtained, it is difficult to understand what

happens in the black box that transforms inputs/intervention into outputs/impact, and
thereby to know why we get the impacts we get (Dunford, 2006).
Armendriz & Morduch (2005) explains that biases in such research designs can
overstate or understate the actual impacts
Even if the researcher has chosen the appropriate design, it is not possible to exclude all
the validity threats. The best technique is to use multiple designs in order to minimize the
uncertainty about the size of treatment effects (Reichardt & Mark, 1998).
Among three methods for supply of Impact Assessment Information, positivist method
was chosen since it is more rigorous and possibility of quantitative estimates of impact is
available. Further, it is more convincing to skeptical outsiders. (See appendix 1 for supply
of impact assessment information). Positivistic ideal calls for deductive approach. In
deductive approach, Hypotheses are generated from the theory followed by empirical
research to test the hypothesis. (Bryman & Bell, 2003).
Graziano & Raulin (2004) mentioned that the deductive approach emphasizes on
deductions from constructs. The deductions are started as hypotheses and then
empirically tested for the research.
Arun & Hulme (2003) suggest the need of range of product and services to tackle the
heterogeneity of the demand structure of poor clients.
In recent years microfinance projects and institutions have been subjected to a vast
amount of impact assessment study. The initial emphasis on scientific sample surveys
38
and statistical analyses has shifted as multi-method IAs and most recently participatory
approaches have been utilized (Hulme, 1999).
The researcher is addressing the selection biases in choosing the program sites and
sample selection.
3.2 Formulation of Hypotheses and Operationalization of Variables
Based on the literature review presented in chapter 2 and establishing the relationships
among variables through logical reasoning in the theoretical framework, next step is to
formulate the hypotheses and operationally define the variables. Purpose of
operationalization is rendering the constructs measurable. This is done by looking at the
dimensions which is then translated into observable and measurable elements. These
hypotheses are established at family/household and enterprise level.
3.2.1 Family/Household-Level
Present study has taken three impact domains; household welfare (education, housing and
food security), household expenditure and household assets.
Children Education
Education has been recognized as an effective and expedient change agent. It helps to
broaden the mental horizon of the people hence, motivate them to participate actively in
the social and economic development of the family and the country at large. Schultz
(1961) and Becker (1975) treated education and training as a form of investment
producing future benefits in the form of higher income for both educated individuals and
for society as a whole. Income generated through household enterprise is used for
children schooling, social investment and consumption (Balkenhol, 2006). Education has
39
a positive influence on eradicating poverty, since increased education leads to increase

income, health and nutrition (Psacharopoulos & Woodhall 1985).
There is a growing body of literature focusing on the determinants of childrens
education and that of girls in particular (King & Hill, 1993 & World Bank, 2001). As it is
clearly depicted in table 2, that microfinance participation leads to improve children
education. So, one can hypothesize the relationship of participation in the microfinance
program and children education.
H 1a: Participation in the program leads to increase in percentage of school going
children.
H 1b: Participation in the program leads to more expenditure on childrens education.
H 1c: Participation in the program leads to increase the highest level of children
education.
Operationalization of children education is based on three dimensions, number of school
going children, highest educational level attained and school expenditure as explained in
table 3.
Table 3. Operationalization of Children Education
Dimension
Number of school going
children
Scale Item
How many children (5-17) go to school?
a)1-3 b) 4-6
c) 6 & above d)None
Source
(Pitt and Khandker
1998)
Highest educational
attained
The highest level of schooling that any of your children has completed.
a. Primary b. Secondary c. Matriculation d. FA
e. Diploma/technical education If Any other
How much did your household spend on school fees and other
education expenses for school going children? (for current year only)
a) Rs 1,000-10,000 b) Rs11,000-20,000 c) Rs 21,000-30,000
(Todd,2001)
School expenditure
level
New item
Source: Developed
Housing
Ahon Sa Hirap (ASHI) a microfinance institution of Philippines has used its own housing
index for it impact assessment as that measures size, structure and roof of the house as
40
the eligibility criteria for clients to enter in the program, originally developed by
CASHPOR.
Value of house, access to clean drinking water and sanitation are important indicators of
housing which have been found in previous studies (Mustafa 1996; Copestake, Dawson,
Fanning, McKay, & Wright-Revolledo, 2005). Positive relationship has been reported in
the previous studies (Chen & Snodgrass, 2001; Neponen, 2003, & Todd 2001).
Following hypotheses can be formulated.
H 2a: Participation in the program leads to improve the housing conditions.
H 2b: Participation in the program leads to improve drinking water source.
Following the literature, the operationalization of housing is based on dimensions of
construction material, house repair, improvements or additions, structural conditions.
ownership status, drinking water and electricity . Rational behind is to observe the
improvement in housing which is an indicator of up gradation in the living standard of
the clients. (See table 4)
Table 4. Operationalization of Housing
Dimension
Scale Item
Source
Construction material
1. What type of roofing material is used in the main

house?
Thatched roof (branches, twigs, leaves, grass)
__________ Country clay tiles
(Herny et al, 2000; Morris et al,

2006)
House repair,
improvements or
additions
Were there any repairs or improvements made to your

house during the last two years?
Yes /No *
Did you use funds generated through enterprise for
improvements?
Yes /No *
During the time when you were using loan have you
made any expansion of house (e.g built new room
etc)
Yes/No
Any Improvement in water or sanitation system (e.g
new wash basin etc)
Yes/No
(Nelson, 2000)
(Nelson, 2000)
(Nelson, 2000)

Ownership status
41
1. What is the ownership status of this

house/apartment?
Built on squatter land ______ Rented
3. What is the observed structural condition of the
main dwelling?
Seriously dilapidated________Sound structure

2006)
Electricity
2. What is household electrical supply?

No connection
_______ Own connection

2006)
Drinking water
What is the main source of drinking water for

members of your household? Piped water
______Tanker Truck
(Copestake, Dawson, Fanning et

al. 2005; Herny et al, 2000;
Morris et al, 2006)
Structural condition

2006)
Source: Developed
NOTE: * Item dropped from final scale.
Food Security
Basic purpose to study this indicator is to see how household diet pattern is changing.
Husain (1998) defines nutrition as instances per week/month of consumption of specific
nutritious foods (e.g., meat, fish, dairy, vegetables).
Developing countries often face a hungry season when there is a bad harvest compared
to the previous year leading to high prices of food commodity and fear of food shortage.
These indicators capture food insecurity during these periods (Nelson, 2000).
Drawback of this indicator is that concept of improvement or eat less varies from
respondent to respondent. To overcome this problem of subjectivity, few more indicators
were added, developed by USAID.
Significant positive relationship between food security and microfinance was observed in
previous studies (Banes, 2001; Chen & Snodgrass 2003; Neponen, 2003; Rosintan,
Drioadisuryo & Cloud 1999). Following hypotheses can be formulated.
H 3a: Participation in the program leads to increase the consumption of nutritious
food item (cereals)
42
H 3b: Participation in the program leads to increase the consumption of nutritious

food item (milk)
H 3c: Participation in the program leads to increase the consumption of nutritious
food item (eggs)
H 3d: Participation in the program leads to increase the consumption of nutritious
food item (meat)
H 3e: Participation in the program leads to increase the consumption of nutritious
food item (fruit)
The operationalization of food security in this study is based on five dimensions. Number
of eating occasions, Diet diversity i-e number of different foods or food groups
consumed, expenditure on food, hunger episodes and coping strategies in dealing with
financial shocks (hunger episodes) as explained in table 5.
Table 5. Operationalization of Food Security
Dimension
Number of meals
taken per day
Diet diversity
Expenditure on food
Hunger episodes
Scale Item
Yesterday, did you or anyone in your household consume? Yes/No *
Any food before a morning meal
A morning meal
Any food between morning and midday meals
A midday meal
Any food between midday and evening meals
An evening meal
Any food after the evening meal
Yesterday, did you or anyone in your household consume? Yes/No
Cereals
Vegetables
milk/milk products
eggs
Meat (chicken, fish, mutton, beef)
sugar/honey
fruits
Did you use the income earned from your business to purchase food?
1. Yes
2. No
If worsened, was there ever a time when it was necessary for your
household to eat less during the last 12 months?*
1. Yes
2. No
Source
USAID food security
indicators (used by
PL 480 Title IIfunded programs)
USAID food security

indicators (used by
PL 480 Title IIfunded programs)
(Nelson, 2000)
(Nelson 2000)

Coping strategies in
dealing with
financial shocks
What was the reason of less eating? *

1. Lack of money 2. Lack of food 3. Other: specify________
What did you do to get rid of this difficult situation? Yes/no *
Borrowed money from family/friends
Borrowed food from family/friends
Sold personal property
Left area to seek employment
Family member left and seek employment
Got local employment
Family member got local employment
43
(Nelson 2000)
Source: Developed
Households Income/Expenditure
Two widely used approaches are income approach and expenditure approach. Income
approach can be measured by taking sources and levels of income whereas; expenditure
approach counts all household expenditures. Accuracy and less time consumption in
using expenditure approach are found to be more practical (Meyer, Nagarajan & Dunn,
2000). Mahjabeen (2008) explains the role of MFIs to raise income and consumption,
reduce income inequality and improve welfare. Significant positive impacts on income
and asset levels were observed in the previous study (Mosley, 2001).
Following hypotheses can be formulated.
H 4a: Participation in the program leads to increase household expenditure in clothes
and household items.
H 4b: Participation in the program leads to increase the likelihood to provide it to
spouse.
H 4c: Participation in the program leads to improve expenditure on house repair.
H 4d: Participation in the program leads to increase spending in food items.
H 4e: Participation in the program leads to increase the loaning activity to relatives.
H 4f: Participation in the program leads to increase the expenditure in celebrations.
H 4g: Participation in the program leads to purchase of land.
44
H 4h: Participation in the program leads to repay old loans.

H 4i: Participation in the program leads to repay existing loans.
This study is using the income and expenditure approach. It takes 7 dimensions of
household income, out of which, 5 items are on expenditures and 2 items on income (see
table 6). Two dimensions of income are sources of income and levels of income. Five
items of expenditures include consumables, loans, repayments, occasions and
investments.
Table 6. Operationalization of Households Income/expenditure
Dimension
Source of income
Change in income
Consumables
Loans
Repayments
Occasions
Investments
Source: Developed
Scale Item
1. Major source of family income? *
Wage
Pension
Social assistance
Income from business
Income from agriculture
Income from rent
Other (specify) _____________
2. No of salaried persons *
None
One
Two or more
Over the last 12 months, has your overall household income?
Decreased greatly ___ Increased greatly *
If increased, why did your income increase? *
If decreased, why did your income decrease? *
Buy food for your household? Yes/No
Buy clothes or other household items? Yes/No
Give or loan the money to your spouse? Yes/No
Give or loan the money to some relatives/friends? Yes/No
To repay microfinance loan Yes/No
To repay other debt Yes/No
For house/land improvement Yes/No
To spend on a celebration or death etc Yes/No
For purchasing new house/land Yes/No
Source
(Aleskerov, 2007)
New item
(Nelson, 2000)
(Nelson, 2000)
(Nelson, 2000)
(Nelson, 2000)
(Nelson, 2000)
(Nelson, 2000)
(Nelson, 2000)
Household Assets
Poor households have little money to spend even in basic need therefore they do not have
enough to spend in household assets. Thats the main reason that one can associate
accretion of assets with household income levels. Complete valuation of all household
45
assets is not compulsory hence measuring specific types of household assets can single
out those who are better as compared to others (Henry et al, 2000). Present research has
taken three major categories, livestock, transportation and appliances. Perception about
value of livestock varies from one culture to another.
For example, in Kenya, most households were reluctant to count livestock because it is
thought to bring bad luck. Similarly in India, keeping cattle does not mean to increase the
monetary worth of the household because of their religious affiliation. Transportation is
another household asset which can be a relative measure of poverty. Bikes, motorcycles,
and other motorized vehicles vary in degree of ownership from country to country.
People in mountainous regions may own fewer bicycles; people in urbanized areas,
relatively more. All major appliances and electronics are considered good for
differentiating relative poverty levels. In India, ownership of electric fans was a
significant measure for signaling relative wealth. In the Kenyan highlands, few
households own fans but many own televisions. In Nicaragua, most surveyed households
owned at least one television, and its value was a significant determinant of the
households relative wealth. Significant positive relationship between microfinance
participation and household assets was observed in various studies (Kondo, 2007;
Sebstad & Chen, 1996 & Sengsourivong, 2006).
Following hypotheses can be formulated;
H 5a: Participation in the program leads to increase the ownership of household asset
(Refrigerator).
H 5b: Participation in the program leads to increase the ownership of household asset
(CD player).
46
H 5c: Participation in the program leads to increase the ownership of household asset
(motorcycle).
H 5d: Participation in the program leads to increase the ownership of household asset
(washing machine).
H 5e: Participation in the program leads to increase the ownership of household asset
(sewing machine).
H 5f: Participation in the program leads to increase the ownership of household asset
(bed with foam).
H 5g: Participation in the program leads to increase the ownership of household asset
(cell phone).
H 5h: Participation in the program leads to increase the ownership of household asset
(television).
Operationalization of household assets consist of 1 dimension ownership, which is
comprised of three categories i-e ownership of livestock, transportation and appliances as
depicted in table 7.
Table 7. Operationalization of Household Assets
Dimension
Ownership
Scale Item
How many of the assets are owned? Yes/No Categories
(1) Livestock
(Buffaloes, Cows, Sheep, Goats, Hens, Horses, Donkeys)

(2) Transportation
(Cycle, Motor cycle, Tractor, Trolley, Cart)

(3) Appliances
(Refrigerator, Television, CD player, Washing Machine,
Sewing Machine, Cell-Phone, Others)

Source: Developed
Source
(Zaidi et al. 2007)
47
3.2.2 Micro-enterprise Level

There has been found an enormous importance of small and medium enterprises sector to
the national economy with regards to job creation and the alleviation of abject poverty
(Bekele & Muchie, 2003).
Hazelhurst (2006) explains the significance of small businesses and enterprises and refers
it as a prerequisite for overall economic growth and the alleviation of poverty and
microfinance is playing a very vital role in poverty reduction that is why it is important to
study enterprise development. Three impact domains have been taken i-e financial
performance, enterprise resource base and income-smoothening effect.
Financial Performance
Indicators like expansion of business, additional workers hired and adding new products
to the enterprise may be used as substitute (proxy) indicators for measuring increased
revenues and profitability. Researchers advocate that growth is more accurate and easily
accessible performance indicator than accounting measure hence superior to indicators of
financial performance.
Studies have shown that impacts on enterprise profits may occur early and then taper off
within the first year or two of microfinance programme participation (Zaidi et al, 2007).
Kondo (2007) that explains positive impact on employment through participation of

microfinance program. Morris & Barnes (2005) found positive impact of microfinance on
addition of new products in the enterprise, improve desirability of products, reduce costs
by purchasing in bulk and improved knowledge of most profitable product hence
48
contributing towards the improvement of financial performance overall. Following

hypotheses can be formulated:
H 6a: Participation in the microfinance program increase expansion of enterprise.
H 6b: Participation in program leads to addition of new products in the enterprise.
H 6c: Participation in the program leads to hiring more workers in the enterprise.
H 6d: Participation in the program leads to improve the product quality of enterprise.
H 6e: Participation in the program leads to improve desirability of products.
H 6f: Participation in the program leads to reduce costs by purchasing in bulk.
H 6g: Participation in the program leads to keep enterprise money separate from
household and personal use.
H 6h: Participation in the program leads to make profit calculation based on cost and
earnings.
H 6i: Participation in the program leads to improve on the knowledge of most
profitable product.
H 6j: Participation in the program leads to have a fixed location for production.
H 6k: Participation in the program leads to have a fixed location for storing.
This study measures the financial performance on five dimensions, expanded size,
exploiting new opportunities, profits, and fixed location.
Table 8. Operationalization of Financial Performance
Dimension
Expanded Size
Cost effectiveness
1.
1.
2.
Exploiting new
opportunities
Profits
1.
2.
1.
2.
Scale Item
During the last 12 months did you add new products?
During the last 12 months did you reduce costs by purchasing at
wholesale prices and in bulk?
During the last 12 months, did you reduce costs with cheaper source
of credit?
During the last 12 months did you develop a new enterprise?
During the last 12 months did you sell in new markets/locations?
Do you keep your enterprise money separate from the money you
have for personal and household expenses?
Do you calculate your profit based on records of your costs and
Source
(Nelson, 2000)
(Nelson, 2000)
(Nelson, 2000)
(Nelson, 2000)
(Nelson, 2000)
(Nelson, 2000)
(Nelson, 2000)
Fixed location
3.
4.
1.
2.
earnings?
Do you know which product(s) bring you the most profit?
Do you pay yourself a wage for your work in your enterprise
Do you have a fixed location with protection from the sun and rain
for selling your products, such as a store, stall, or kiosk?
Do you have a fixed location for producing or storing your
products that is different from the location where your family lives?
49
(Nelson, 2000)
(Nelson, 2000)
(Nelson, 2000)
(Nelson, 2000)
Source: Developed
Enterprise Resource Base

To assess the value of net worth of enterprise (total assets) is difficult, hence capturing
indicators that determine the resource base of the business is a smart choice (Nelson,
2000).
H 7a: Participation in the program leads to increase the major investment in the
enterprise.
H 7b: Participation in the program leads to increase the minor investment in the
enterprise.
Following the literature, enterprise resource base is based on one item, investment further
categorized to major and minor investment as shown in the table below.

Table 9. Operationalization of Enterprise Resource Base
Dimension
Investment
Scale Item
Have you made a major investment in your enterprise? (shop
stall etc)
Have you made a minor investment in your enterprise?(chair,
table, etc)
Source
Nelson, 2000
Nelson, 2000
Source: Developed
Income Smoothening
The objective of this indicator is to assess the income-smoothening effect, especially
poorer entrepreneurs who are more sensitive to income/expenditure shocks such as bad
harvest etc. and they do not have access to any other source of credits and savings.
Following hypotheses can be formulated;
50
H 8a: Participation in the program assists clients to survive periods of reduced cash
flow.
H 8b: Participation in the program leads to reduce the repayment problems.
Operationalization is based on two items, sufficient money and repayment as shown in the
table below. Basically, through this indicator researcher is measuring the sufficiency of
money for smooth running of enterprise.
Table 10. Operationalization of Income Smoothening
Dimension
Sufficient money
Repayments
1.
2.
1.
2.
Scale Item
During the last 12 months, did you feel that money you had
was not enough to conduct your enterprise?
If yes, how long did this period last?
Did you have a problem in repayment in the last loan cycle?
If yes, what caused your repayment problems?
Source
Nelson, 2000
Nelson, 2000
Source: Developed
3.2.3. Demographic Characteristics of the Clients

Including other independent variables (personal and demographic characteristics) has
been supported by the existing literature (Coleman, 1999; Kondo et al., 2008; Marr,
2002; Montgomery, 2005). Age is expected to be a factor because it is well-known that
age-earning profile is not flat. Education, of course, is a known determinant of both
earning capacity and productivity in non market (home) production (Kondo et al, 2008).
Demographic characteristics of the respondents (gender, age and education) and number
of households, number of salaried persons and type of area rural vs. urban will serve as
other independent variables for impact on household and enterprise level.
51
3.3 Proposed Research Model

On the basis of discussion made so far, and theoretical underpinnings explained in table
2, the proposed model would be like as shown below in Figure 6. The present research
model is a unified framework that sheds light on the impact of microfinance both at
household and enterprise level. In addition to this demographic and other independent
variables have been added.
Figure 6. Proposed Research Model

Childrens education
Housing
Participation in the
microfinance
program
Food Security
Demographics
Gender of the
owner
Age
Education
Other independent
variables
No of salaried
persons
No of households
Area
Household Expenditure
Household Assets
Enterprise resource base
(Proposed)
Income smoothing effect
52
Chapter 4
Methodology
4.1 Small Enterprise Education and Promotion (network) SEEP
SEEP includes set of five tools that addresses different aspects from the point of users.
This set of tools can be used individually or in any combination. Significance of these
tools is that they are helpful to assess how the microenterprise development programs are
contributing towards community development in terms of household welfare/security,
well being of individuals and enterprise stability (Sebstad & Chen, 1996).
Table 11. Cost and Benefit Analysis of Poverty Assessment Approaches

Tools
Cost
1.
Detailed
Household
Expenditure Surveys and
Living Standard Measurement
Survey
2. Rapid Appraisals
Participatory Appraisals
a.
Participatory
Ranking1
and
Wealth
3. Indicator Based Methods

a. Housing Index
b. Human Development Index

(UNDP 1999)
4. Consultative Groups to
Assist the Poorest (CGAP)
Source: Developed
Large samples, time consuming, analytically too

demanding
Too subjective
reliability
Tool has the limitation to be used on larger populations

or determine the poor(est) in a large geographical area.
Tool has the limitation of generalizibity across rural

and urban areas across regions and countries.
Neglecting other dimensions of poverty such as food
security and human resources
Uses three indicators out of which 2 i-e life expectancy
at birth, and per capita income are costly and cannot be
operationalized.
Benefits
Accuracy, rigorous
Best to get the fast

information on local level
economic conditions
Can identify the poor at
community level
Holistic,
People-centric
determination of poverty
Reliabilty
Simple, observable and

verifiable
Practical,
accurate, and relatively
simple mean of
assessment
53
4.2 Client Assessment Continuum

Academicians argue that there is a need of rigorous market research to assess the client
for microfinance intervention which is too costly and time consuming. However, on the
other hand impact evaluations call for longitudinal approach, large sample sizes and
require complex analysis. Since AIMS-SEEP tool fits in between market research at one
end and impact evaluation on the other as shown in figure 7.
Figure 7. Client Assessment Continuum
Source: Based on Nelson 2000

4.3 Unit of Assessment
Following the design and impact path model, next step is the choice of the unit(s) of
assessment (or levels of assessment). Assessment at all the levels i-e household,
enterprise, individual and community level is made which gives the fullest picture of over
all impact by household economic portfolio model (HEMP), a project AIMS (Chen &
Dunn, 1996).
Common units of assessment are the household, the enterprise or the institutional
environment within which agents operate (Hulme, 1999). The relative advantages and
disadvantages of different units of assessment are summarized in the following Table 12.
54
Table 12. Units of Assessment and their Advantages and Disadvantages

Unit
Individual
Advantages
Easily defined and
identified
Enterprise
Availability of analytical
tools (profitability,
return on investment
etc)
Household
Relatively easily defined

and identified
Permits an appreciation
of livelihood impacts
Permits an appreciation
of interlinkages of
different enterprises and
consumption
Community
Permits major
externalities of
interventions to be
captured
Availability of data
Availability of analytical
tools (profitability, SDIs,
transaction costs)
Comprehensive
coverage of impacts
Appreciation of linkages
between different units
Institutional Impacts
Household Economic
Portfolio (ie household,
enterprise, individual and
community)
Disadvantages
Most interventions have
impacts beyond the
individual
Difficulties of
disaggregating group
impacts and impacts on
relations
Definition and
identification is difficult
in microenterprises
Much microfinance is
used for other enterprises and/or
consumption
Links between
enterprise performance
and livelihoods need
careful validation
Sometimes exact
membership difficult to
gauge
The assumption that
what is good for a
household in aggregate
is good for all of its
members individually is
often invalid
Quantitative data is
difficult to gather
Definition of its
boundary is arbitrary
How valid are inferences about the
outcomes produced by institutional
activity?
Complexity
High costs
Demands sophisticated
analytical skills
Time consuming
Source: Based on Hulme 1999

4.4 Longitudinal vs. Cross-sectional Design in Impact Assessment
Many USAID projects have tradition of working with the longitudinal designs. This
include two studies after a specified interval, pre-test followed by post-test.
Hulme (1997a) states that in longitudinal data collection clients may not show their
interest in second and third interview as they had in the first interview. In such
55
circumstances interviewees can be rewarded at few places to enhance the data quality.
This can be in the form of social reward such as small gifts, like snacks, soda water
bottles etc. This practice was quite successful in East Africa where the interviewee was
paid cash for surrendering his/her time.
This research uses a cross-sectional design with many advantages when used in field
settings. Distinctive advantages are less expensive in terms of time and resources. It also
provides more timely information useful to program a manager which is an edge over the
longitudinal data. Field studies mostly use cross-sectional designs because it saves time,
cost and effort (Sekaran, 2003). Following table shows the study design chosen in the
previous studies.
Table 13. Impact Assessment Studies using Different Study Designs
Name of the Study
Bangladesh Institute of Development Studies(BIDS) and
World Bank (WB) joint study in Bangladesh
Managing Resources, Activities, and Risk in Urban India:
The Impact of SEWA Bank
The Impacts of Micro credit: A Case Study from Peru
Impact of microfinance on rural households in the
Philippines; A case study from the special evaluation study
on the effects of microfinance operations on poor rural
households and the status of women
Impact of microfinance on Household welfare, Japan

Small Industries Development Bank of India
(SIDBI), India
Design
Cross-sectional
Longitudinal (1997-99)
Longitudinal
Longitudinal
Quasi-experiment
Longitudinal/cross sectional
Longitudinal (2001-2004)
Source: Developed
There were three options available to the researcher;
Option 1, Clients only gives a quick dirty assessment of MFI clients. Since there is
no comparison group, it is difficult to attribute the change as microfinance success.
56
Option 2, Clients and non clients is the most common and popular cross-sectional
design, which has been used tremendously in previous studies (see literature review
Table 2). It gives a comparison with/without microfinance intervention. However, results
can be misleading because clients and non-clients are different in having the
entrepreneurial drive.
Option 3, Mature clients and incoming clients is considered appropriate because these
two groups comprise of same type of people who choose to join the program. Incoming
clients serve as the comparison group and are considered as proxy for non clients. The
assumption is that incoming clients have same to existing clients have same exposure of
social environment and characteristics like motivation, business experience, and
entrepreneurial drive. Hence it offers more appropriate and well identified comparison
group. This helps to reduce self-selection bias reason being they also opted to join the
program (Nelson, 2000).
Regardless of the chosen design and the elaborateness of comparisons, however, some
uncertainty about the size of treatment effects will always remain. It is impossible to rule
out completely all threats to validity. Ultimately, researchers must rely on accumulating
evidence across multiple designs and the corresponding multiple estimates of effects
(Reichardt & Mark, 1998).
The cross-sectional approach claims to overcome the problem of experiencing the
difference in the entrepreneurial spirit, since both its control and treatment group consist
of individuals who have opted to participate in the MFI. The new entrants are the control
group, whereas the veteran participants with two or more years experience with the MFI
are the treatment group (Karlan, 2001 & Marr, 2002).
57
4.5 Survey Method

Different impact assessments have used different tools in the previous studies to tackle
the cultural diversity. Present research has used AIMS-SEEP tool as a baseline though it
was adapted further according to the culture. New clients (incoming clients) are
compared with the established clients. Difference in the lives of two groups based on the
indicators under study can be attributed to the program impact. Selection bias was
controlled by comparing new and established client; rational is that two groups will not
have the difference in their entrepreneurial spirit.
4.6 Instrumentation: Development of Interviewee Data Form
Based on AIMS-SEEP tool, new scale items were added by conducting focus groups and
to make it suitable for local environment. Following table explains the employed research
methods.
Table 14. Overview of the Employed Research Method.
Method
Type
Literature Review
Analysis
of
books,
academic
Number
Year
April
magazines and journals, newspapers
2007-April
2009
and company reports, conferences and

workshops proceedings.
Focus Groups
a. Focus group consisting of four

members with NRSP executives.
b. Focus group consisting of three
members
with
of
Pakistan
Microfinance Networks (PMN)

c. Focus group consisting of three
members of PakOman Microfinance
bank
3 Focus groups
May-September
2007

Interviews
Personal interviews with microfinance
58
4 Interviews
March 2008
4 Rounds
May 2008
12 usable responses
October 2008
48 usable replies
December 2009
384 usable replies
January- April 2009
clients and practitioners. The main aim

was to check that the questionnaire
captures all the facets of the constructs
mentioned in main conceptual model.
Sorting Rounds
Review of local survey instruments

(tools used by NRSP in conducting
local surveys and data forms by banks
used for verification of clients) Sorting
of
items
for
questionnaire
for
questionnaire by a group of 3 judges

(1 Professor, 2 doctoral students)
First Pilot Study
Field tests of draft instrument with

client
Second Pilot Study
Field interviews with NRSP and KB

clients
Final Survey
Final field survey to the clients of

NRSP, KB, POMF and FMFB
Source: Developed
Questions on enterprise development has been added, similar approach has been followed
by Kondo et al, 2008 in order to establish a household survey questionnaire which was
adopted from the Annual Poverty Indicators by adding questions on loan accounts,
enterprises, and gender-related matters.
Initially eight clients were interviewed to sort and resolve measurement issues. Since it
was a field study it was important to explore issues like interview length, question format,
sensitivity issues, recall ability and information accuracy. Based on these interviews, the
household-level and enterprise-level questionnaires for the baseline study were
constructed. Sequence of questions was changed and questions were reworded where
necessary. After this, interview form was field tested and revised four times. Pilot test
59
was run on a sample of 100 households. Based on this, questions on household and
enterprise levels were finalized.
Different impact assessments have used different tools in the previous studies to tackle
the cultural diversity. Present research has used AIMS-SEEP tool as a baseline though it
was adapted further according to the culture. New clients (incoming clients) are
compared with the established clients. Difference in the lives of two groups based on the
indicators under study can be attributed to the program impact. Selection bias was
controlled by comparing new and established client; rational is that two groups will not
have the difference in their entrepreneurial spirit.
To ensure consistency in the questionnaire wording, researcher has translated it into Urdu
language. However, depending on the literacy level and exposure of the respondents,
interviews were conducted in local languages as well.
(Both English and Urdu version of Interview forms are attached as appendix I).
4.7 Sampling Procedures

There has been a much debate on the appropriate size of sample. Two approaches are
followed which are entirely reverse of each other. A maximalist approach is usually used
by a statistician who is more concerned about the quality also he wants to ensure that all
the assumptions are met to apply a certain statistical test. On the other hand, field
researcher adopts minimalist approach but still provides credible results. Reality is that
field research is much more expensive in terms of money and time
Maximalist takes at least 500 whereas minimalist recommends at least 35 to 50 for each
subgroup we want to compare and analyze ((Nelson et al, 2000 & USAID, 2008).
60
4.7.1 Cluster Sampling

Cluster sampling is mostly used in those situations when population is geographically
dispersed and it is not possible to reach every respondent when time is limited.
Since the four microfinance institutions chosen for analysis have geographically
dispersed clients so cluster sampling was thought to be the most appropriate. One way to
group or cluster the clients in on the basis of time spent in the microfinance program (e.g.
1-3years vs. more than 2 years etc). This type of clustering is more practical when good
records are available. The major significance of such a procedure is that it counters any
possibility of bias in the samples to a significant extent.
Figure 8 shows the choice points in sampling design.
Figure 8. Choice Points in Sampling Design
Representativeness of sample is
critical for the study so chosen
PROBABILITY Sampling
Purpose is generalizability
Cluster sampling
Two heterogeneous groups by time i-e
New and established clients (Simple
random sampling of clusters)
Source: Based on Sekaran, 2003

Cluster sampling would work best for this research because the clients for four different
microfinance institutions were geographically dispersed and it involved huge cost in
reaching them especially in rural areas where they were away several kilometers.
61
4.7.2 Sample Size

Collection of data from survey sample is constrained by time and budget. This cost
includes transportation, photocopies, filed team compensations, and other related costs of
data cleaning and data verifications. Time is also a big cost which is reflected in training
the interviewers, facilitations in the field etc. Generally, rural survey samples are much
more expensive than the urban surveys. For most cross-sectional impact assessments
using the two categories of clients suggested in this research design, sample sizes of
either 170 (for the sampling design in Table 15) or 340 (for the sampling design in Table
16) would seem reasonable. These figures include an additional 20% over the sum of all
the cellsincluding extras to replace those who are not available to be interviewed.
Interestingly, these sample sizes will also likely produce requisite numbers for achieving
statistical significance in many cases.
Table 15. Minimal Sample Size for Two Groups of Clients
Disaggregated by one subcategory
Male
Female
Established Clients
35
35
Incoming Clients
35
35

Table 16. Minimal Sample Size for Two Client Groups
Disaggregated by two sub-categories
Established Clients
Male
Female
35
35
Incoming Clients
Male
Female
35
35
35
35
35
35
62
Based on the above guidelines and as proposed by Sekaran (2003), the present study has
taken sample size of 384.
4.8 Selection of Microfinance Providers
Based on the spectrum of services, microfinance institutes have been categorized to in
four major classes (Pakistan Microfinance Review, 2006) as under:
Rural Support Programme (RSP)
RSPs are running microfinance operation as part of multi-dimensional rural development
programme.
Microfinance Banks (MFB)
MFBs are licensed and prudentially regulated by the State Bank of Pakistan to
exclusively service microfinance market.
Microfinance Institution (MFI)
MFIs providing specialized microfinance services.
Others
All institutions that do not fall in the above three categories.
Four different microfinance institutes have been selected for this study, based on the
statistics presented in the Table 17 consisting of one RSP and three MFBs.
National Rural Support Programme has been taken as RSP and Khushhali Bank (KB),
The First Microfinance Bank Ltd. (FMFB), Pak-Oman Microfinance Bank Ltd.
(POMFB) as MFBs. Moving from oldest to the latest, this study has taken NRSP as the
oldest and Pak-Oman Bank as the latest establishment in Pakistan as microfinance service
providers.
63
Two categories i-e Rural Support Program and Microfinance Banks were taken to get the
true opinion and diversity. Similar pattern has been found in the previous study by Kondo
et al, 2008.
Table 17. Summary Statistics of Microfinance Institutes
MFBs
RSP
Age
Total Assets
Average Gross Loan
Portfolio
Number of Active
Borrowers
Number of Active
Savers
Total Number of Staff
Total Number of Loan
Officers
Borrowers per staff
Total Assets
Equity-to-Asset ratio
Debt-to-Equity ratio
Average Loan Balance
per Active
Borrower/per capita
income
Average Number of
Active
Loans/(Deposits)
Adjusted Cost per
Borrower (Rs. In 000)
NRSP
KB
POMFBL
FMFBL
14
3,673,667
7
6,703,280
2
495,587
6
2,807,162
2,619,282
2,400,264
89,393
954,234
292,456
704,318
283,965
14,397
12,249
101,394
79,827
2,469
1,865
201
1,045
1,968
616
70
651
118
152
72
3,673,667
6,703,280
495,587
97
2,807,162
11.8%
27.0%
91.8%
23.9%
7.5
2.7
0.1
3.2
11
16
11
21
241,651
260,441
18,532
136,191
Source: Adapted from Micro WATCH. A Quarterly Update on Microfinance outreach in

Pakistan: Jan-Mar 2008.
4.9 Pretest
A pretest was carried out before conducting the actual survey to test and measure the tool
in the local settings because this tool was tested first time in Pakistan. The population of
the study consists of all the active borrowers of the microfinance institutions. Face-toface interviews were designed and interview form was translated into Urdu language. An
64
initial 100 interviews were conducted from two different microfinance institutions as a
pretest.
Like client of any other bank, confidentiality of client personal data is maintained by the
microfinance institution. One has to get written permission from the Head Office for
reaching clients. That is why a numbers of steps were involved in the process.
1. Writing letters/e-mails/telephone to the Head office seeking permission.
2. Head office approves and directs to regional branch
3. Regional branch refers it to the service centre (locality where microfinance clients
are being served)
4. A customer representative officer (CRO) at service centre was assigned to help
access the client.
5. Appointments for visiting clients (at their homes or visiting branch office on
recovery days)
The credibility of research findings is a very important element of a research. For this
reason, it is important to do a good research design from the beginning (Saunders, Lewis,
& Tronhill, 2007) Credibility includes validity, reliability, generalization and
transferability, discussed in chapter 5.
65
Chapter 5
Data Analysis
5.1 Response Rate and Non-Response Bias
The final data collection process was conducted over a period of 12 weeks, commencing in
January 2009 until April 2009. 400 face-to-face interviews with the clients of 4 different
microfinance institutions were conducted. 384 usable interviews which make a response rate of
96%, was more than double of initial anticipation. Since a large percentage of clients were
illiterate i-e 30.2% the researcher had to read out questions to them in order to get the response.
This was the main reason for being such a high response rate.
5.2 Overall Sample Demographic Profile

Demographic data allows one to demonstrate that the clients in the sample are similar to and
representative of the entire client population. Grouping and analyzing the clients based on age,
education, marital status, length of time with the program, amount of micro credit, type of
business, or loan size can provide insight into how program services could be tailored to better
meet the needs of particular client subgroups. In data analysis, demographic characteristics are
often used for cross tabulating with the results of a survey question.
Table 18. Demographic Profile of the Respondents

Variable
Category
Sex
Male
Age
Research Sample
(n = 384)
Frequency
Percentage
196
51.0
Female
188
49.0
Total
18-25
384
100.0
39
10.2
26-35
145
37.8
36-45
131
34.1
46-55
62
16.1
56 and above
1.8

Total
Marital Status
Educational
Achievement/level
Single
Married
Widow
Total
Illiterate
Primary
Middle
Secondary
Higher
Secondary/Graduation
Total
384
49
326
9
384
100.0
12.8
84.9
2.3
100.0
116
30.2
59
65
104
15.4
16.9
27.1
40
10.4
384
100.0
66
Source: Field Data

The demographic profile of the survey respondents presented in Table 18 shows that 51%
of the respondents were male and 49% were female. The largest group consisted of those
aged 26-35(37.8%) followed by the age group 36-45 (34.1%). 1.8 % of the respondents
were above age of 56years and 10.2% were aged 18-25 years.
About the educational level of the respondents, it was very interesting to find out that
30% of the respondents were illiterate followed by 27% having matriculation, 17%
middle and last group of respondents having higher secondary and graduation.
Table 19. Household Profile of the Respondents
Variable
Category
No of Households
1-4 members
83
21.6
5-8 members
236
61.5
8 and above
65
16.9
Total
384
100.0
Rural
148
38.5
Urban
236
61.5
Total
384
100.0
No of salaried persons in the household None
71
18.5
168
43.8
Area
1 member
Frequency Percentage
No of Children (5-17yrs)
67
2 and more members
145
37.8
Total
384
100.0
No
126
32.8
Yes
258
67.2
Total
384
100.0
Source: Field Data

The above table briefly explains the household profile of the respondents. It was found
that 61.5% of the respondents had number of household ranging between 5-8 members.
Only 16.5% of the respondents had household members 8 and above. 38.5% of the
respondents belonged to rural area and 61.5% to urban areas.
Table 20. Organizational and Client Profile
Variable
Category
Microfinance Institution
Category of Client
Amount of Microcredit
No of Loan Cycles
Type of Business before

Microcredit
Frequency
Percentage
NRSP
KB
FMFBL
POMFBL
Total
New Clients
(Less than 1 and 1year)
Established Clients
(2-5 years)
Total
1,000-10,000
11,000-20,000
21,000-30,000
31,000 &above
Total
One
Two
three
four and above
Agriculture
104
97
82
101
384
27.1
25.3
21.4
26.3
100.0
258
67.2
126
32.8
384
77
206
54
47
384
296
64
16
8
100.0
20.1
53.6
14.1
12.2
100.0
77.1
16.7
4.2
2.1
2.3
Livestock
46
12.0

Retail
Others
Total
53
276
384
68
13.8
71.9
100.0
Source: Field Data

The above table presents brief profile of the clients and the organization to which they
belonged to. The largest group of 27.1 % belonged to NRSP, 25.3% to KB, 21.4% to
FMFBL, 26.3% to POMFBL.
The table shows that 67.2% of the clients are new(less than 1 and 1 year) and 32.8% are
established clients (2-5 years).
About the amount of Microcredit, largest group of 53.6% of the respondents had the
amount of Rs11, 000-20,000 and only 12.2% of the respondents had 31,000 and above.
It was interesting to discover that largest group of client i-e 71.9% belonged to varied
kind of businesses before they have taken microcredit. These businesses include,
tailoring, spare parts of automobiles, beauty parlors, and bakery, just to name a
few.13.8% of the respondents belonged to retail business, 12% to the livestock, and only
2.3% to agriculture. In microfinance field most of the business had sole proprietors. Khan
& Rahaman (2007) observed that family members contribute to this small-scale business
as additional workers, similar was observed in the present research.
5.3 Descriptive Analysis of Responses
After identifying the demographic characteristics of the survey respondents and their
household and organizational profile, attention turned to how they answered the survey
questions related to the latent constructs in the conceptual model. The table reports the
percentage frequencies for all the items and their central tendency (mean) and dispersion
(Standard deviation).
69
Table 21. Descriptive Statistics of Childrens Education
EDU3
EDU2
EDU1
Variable
Category
Percentage
1-3
4-6
6 and above
None
1000-10,000
11,000-20,000
21,000-30,000
NA
50.5
13.3
1.6
34.6
39.6
17.2
8.9
34.4
Primary
Middle
Matric
Intermediate
Graduation & Masters
NA
18.5
18.5
19.8
5.7
4.7
32.8
Mean
SD
2.20
1.36
2.38
1.31
3.29
1.62
Source: Field Data

The respondents were first asked about the children education. The findings show:
1. 50.5% of the respondents had the children of 5-17 years between 1-3. 34.6% had
no children of aged 5-17 years. (EDU1: mean = 2.20; SD = 1.36).
2. 39.6% of the respondents spent on children education an amount of Rs 100010,000 and only 8.9% spent Rs 21,000-30,000 annually. (EDU2: mean = 2.38; SD
= 1.31).
3. 19.8% of the respondents had matriculation as the highest children educational
achievement and only 4.7% were graduation and masters. (EDU3: mean = 3.29;
SD = 1.62).
70
Table 22. Descriptive Statistics of Housing

Variable
Housing
HUS1
HUS2
Category
Percentage
Yes
No
Hand pump, well water, canal,etc
35.2
64.8
41.1
Piped water, motor pump, etc
58.9
Mean
SD
1.64
0.47
1.58
0.49
Source: Field Data

Housing condition of the clients was measured on categorical scale. The findings show
that:
1. 64.8% of the respondents did not spent on housing improvement and repair
whereas 35.2% has done so. (HUS1: mean = 1.64; SD = 0.47).
2. 58.9% of the respondents had piped water as source of drinking water whereas
41.1% had hand pump, well water etc. (HUS2: mean = 1.58; SD = 0.49).
Table 23. Descriptive Statistics of Food Security
Food
Security
Variable
FDI
FD2
FD3
FD4
FD5
Response Scale (%)

(1) No
(2)Y
49.0
51.0
36.2
63.8
49.5
50.5
61.7
38.3
58.9
41.1
Mean
SD
1.51
1.63
1.50
1.38
1.41
0.50
0.48
0.50
0.48
0.49
Source: Field Data

A five-item scale measured clients food security.
1. 51% have consumed food item (cereals) yesterday and 49% have not consumed it.
(FD1: mean = 1.51; SD = 0.50).
2. 63.8% have consumed food item (milk) yesterday and 36.2% have not used it.
(FD2: mean = 1.63; SD = 0.48).
71
3. 50.5% have used food item (eggs) yesterday and 49.5% have not consumed it.
(FD3: mean = 1.50; SD = 0.50).
4. Only 38.3% have used food item (meat) yesterday, whereas 61.7% have not used
it. (FD4: mean = 1.38; SD = 0.48).
5. 41.1% of the respondents have used food item (fruit) yesterday, whereas 58.9%
have not used it. (FD5: mean = 1.41; SD = 0.49).
Table 24. Descriptive Statistics of Household Expenditure
Household Expenditure
Variable
HSIN1
HSIN2
HSIN3
HSIN4
HSIN5
HSIN6
HSIN7
HSIN8
HSIN9
Response Scale (%)

(1) No
(2)Y
99
1
97.7
2.3
98.4
1.6
99.2
0.8
98.4
1.6
99.0
1.0
98.7
1.3
98.7
1.3
98.2
1.6
Mean
SD
1.01
1.02
1.01
1.00
1.01
1.01
1.01
1.01
1.02
0.10
0.15
0.12
0.08
0.12
0.10
0.11
0.11
0.16
Source: Field Data

A nine-item scale measured the respondents household expenditure.
1. 99% of the respondents had not increased their spending in clothes and household
item. (HSIN1: mean = 1.01; SD = 0.10).
2. 97.7% had not given the microcredit to their spouses whereas only 2.3% have
done so. (HSIN2: mean = 1.02; SD = 0.15).
3. 98.4% have not spent on house repair whereas 1.6% has not done so. (HSIN3:
mean = 1.01; SD = 0.12).
4. 99.2% have not participated in food items, whereas 0.8% has done so. (HSIN4:
mean = 1.00; SD = 0.08).
72
5. 98.4% have not increased their loaning activity to their relatives, whereas 1.6%
has loaned it. (HSIN5: mean = 1.01; SD = 0.12).
6. 99.0 % have not spent in celebration, whereas 1.0% has spent. (HSIN6: mean =
1.01; SD = 0.10)
7. 98.7% have not done purchase of land, whereas 1.3% has done so. (HSIN7: mean
= 1.01; SD = 0.11)
8. 98.7% have not repaid old loans, whereas 1.3% has done so. (HSIN8: mean =
1.01; SD = 0.11)
9. 98.2% have not repaid existing loans, whereas 1.6% has done so. (HSIN9: mean =
1.02; SD = 0.16)
Table 25. Descriptive Statistics of Household Assets
Variable
Household Assets
HSAS1
HSAS2
HSAS3
HSAS4
HSAS5
HSAS6
HSAS7
HSAS8
Source: Field Data
Response Scale (%)

(1) No
(2)Y
26.8
73.2
74.2
22.1
19.0
37.8
14.6
25.8
73.2
26.8
25.8
77.9
81.0
62.2
85.4
74.0
Mean
SD
1.73
1.26
1.25
1.77
1.80
1.62
1.85
1.75
0.44
0.44
0.43
0.41
0.39
0.48
0.35
0.48
An eight-item scale measured the respondents household assets.

1. 73.2% of the respondent owned refrigerator whereas, 26.3% dont have this asset.
(HSAS1: mean = 1.73; SD = 0.44)
2. 26.3% of the respondents owned CD player whereas, 73.2% dont have this asset.
(HSAS2: mean = 1.26; SD = 0.44)
73
3. 25.8% of the respondents owned motorcycle whereas, 74.2% dont have this asset
(HSAS3: mean = 1.25; SD = 0.43)
4. 77.9% of the respondents owned washing machine whereas, 22.1% dont have
this asset (HSAS4: mean = 1.77; SD = 0.41)

5. 81.0% of the respondents owned sewing machine whereas, 19.0% dont have this
asset (HSAS5: mean = 1.80; SD = 0.39)
6. 62.2% of the respondents owned bed with foam whereas 37.8% dont have this
asset. (HSAS6: mean = 1.62; SD = 0.48)
7. 85.4% of the respondents owned cell phone whereas 14.6% dont have this asset.
(HSAS7: mean = 1.85; SD = 0.35)
8. 74.0% of the respondents owned television whereas 25.8% dont have this asset.
(HSAS8: mean = 1.75; SD = 0.84)
Table 26. Descriptive Statistics of Enterprise Financial Performance and Enterprise
Resource Base
Enterprise Financial
Performance
Variable
Enterprise
Resource
Base
ENT1
ENT2
ENT3
ENT4
ENT5
ENT6
ENT7
ENT8
ENT9
ENT10
ENT11
ENR12
ENR13
Source: Field Data
Response Scale (%)

(1) No
(2)Y
19.5
80.5
59.4
40.6
91.4
8.6
78.6
21.4
80.7
19.3
83.3
16.7
56.0
44.0
31.5
68.5
28.1
71.9
33.1
66.9
67.7
32.3
87.5
12.5
68.5
31.5
Mean
SD
1.80
1.40
1.08
1.21
1.19
1.16
1.44
1.68
1.71
1.66
1.32
1.12
0.39
0.49
0.28
0.41
0.39
0.37
0.49
0.46
0.45
0.47
0.46
0.33
0.46
1.31
74
An eleven-item scale measured clients enterprise financial performance.

1. 19.5% of the respondents had expanded the enterprise whereas 80.5% didnt expand
size of the enterprise by participating in the program. (ENT1: mean = 1.80; SD = 0.39)
2. 40.6% of the respondents had added new products in the enterprise whereas,
59.4% didnt do. (ENT2: mean = 1.40; SD = 0.49)
3. 8.6% had hired new workers whereas, 91.4% didnt do. (ENT3: mean = 1.08; SD
= 0.28)
4. 21.4% had improved the product quality of enterprise whereas, 78.6% didnt do.
(ENT4: mean = 1.21; SD = 0.41)
5. 19.3% had improved the desirability of products whereas, 80.7% didnt do.
(ENT5: mean = 1.19; SD = 0.39)
6. 16.7% of the respondents had reduced costs by purchasing in bulk whereas,

83.3% didnt do. (ENT6: mean = 1.16; SD = 0.37)
7. 44.0% had kept money separate from household and personal use whereas, 56.0%
didnt do. (ENT7: mean = 1.44; SD = 0.49)
8. 68.5% of the respondents had done profit calculation based on cost and earnings
whereas, 31.5% didnt do. (ENT8: mean = 1.68; SD = 0.46)
9. 71.9% of the respondents had the knowledge of most profitable product whereas
28.1% didnt have this knowledge. (ENT9: mean = 1.71; SD = 0.45)
10. 66.9% of the respondents had fixed location for production whereas, 33.1% didnt
have this. (ENT10: mean = 1.66; SD = 0.47)
11. 32.3% of the respondents had fixed location for storing whereas, 67.7% didnt
have this. (ENT11: mean = 1.32; SD = 0.46)
75
A two-item scale measured clients enterprise resource base.

1. 12.5% of the respondents had done major investment in the enterprise whereas,
87.5% had not done so. (ENR12: mean = 1.12; SD = 0.33)
2. 31.5% of the respondents have done minor investment in the enterprise whereas,
68.5% had not done so. (ENR13: mean = 1.31; SD = 0.46)
Table 27. Descriptive Statistics of Income Smoothening
Variable
INS1
Income
Smoothening INS2
Source: Field Data
Response Scale (%)

(1) No
(2)Y
45.8
54.2
71.6
28.4
Mean
1.45
1.71
SD
0.49
0.45
A two-item scale measured enterprise income smoothening.

1. 54.2% of the respondents experienced to survive periods of reduced cash flow,
whereas 45.8% didnt have the same experience. (INS1: mean = 1.45; SD = 0.49)
2. 28.4% of the respondents felt reduced repayment problems whereas 71.65 did not
have the same experience. (INS2: mean = 1.71; SD = 0.45)
5.4 Reliability
The reliability of a measure is an indication of the stability and consistency with which
the instrument measures the concept and helps to assess the goodness of a measure
(Sekaran, 2003).
Reliability refers to the extent to which the data collection techniques or analysis
procedures will yield consistent findings. It can be assessed by posing the following three
questions (Easterby-Smith, Thorpe, & Lowe, 2002).
1. Will the measures yield the same result on the other occasions?
2. Will similar observations be reached by other observations?
76
3. Is there a transparency in how raw data have been used to draw conclusions?
Since the tool was taken as a baseline measure and was developed according to local
context, it was mandatory to measure its reliability.
There are three perspectives by which reliabilities can be measured (Cooper & Emory,
1995).
Stability
A measurement is said to be stable if you can secure consistent results with repeated
measurements of the same person with the same instrument. Stability measurement in
survey situations is more difficult and less attractive than for observation studies.
Equivalence
While stability is concerned with personal and situational fluctuations from one time to
another, equivalence is concerned with variations at one point in time among observers
and samples of items.
Internal Consistency
Internal consistency means degree to which instrument items are homogeneous and
reflect the same underlying construct(s).
Among the academic researchers community, the most popular method for measuring
reliabilities is the internal consistency methods, Cronbachs alpha (Koufteros, 1999).
SPSS was used to measure the internal consistency of constructs. Sekaran (2003)
proposes Kuder-Richardson KR-20 for the dichotomous scale however; the most popular
reliability statistics in use today is Cronbach's alpha (Cronbach, 1951) reason being that
the KR-20 is mathematically equivalent to the formula for coefficient alpha (Barrett,
2007). (See Appendix II for calculations) KR-20 is just a convenient way of simplifying
77
the calculations of reliability for binary-response items. Nunnally & Bernstein (1994)
define alpha and KR-20 in terms of population variances. Crocker & Algina (1986) also
define the same relationship between alpha and KR-20.
Field Data measures the Cronbachs alpha and Guttman Split-Half Coefficient in order
to measure internal consistency. Cronbach's alpha is an index of reliability associated
with the variation accounted for by the true score of the "underlying construct." Construct
is the hypothetical variable that is being measured (Hatcher, 1994). Alpha coefficient
ranges in value from 0 to 1 and may be used to describe the reliability of factors extracted
from dichotomous (that is, questions with two possible answers) and/or multi-point
formatted questionnaires or scales (i.e., rating scale: 1 = poor, 5 = excellent). The higher
the score, the more reliable the generated scale is. Nunnaly (1978) has indicated 0.7 to be
an acceptable reliability coefficient but lower thresholds are sometimes used in the
literature. This study uses a newly developed scale and reliability coefficients that lie
between 0.5-0.9 which shows not only the evidence of internal consistency and reliability
of scales but has also the literature support. A reliability coefficient value of 0.5-0.6 has
also been reported as sufficient for preliminary research (Nunnally, 1978).
78
Table 28. Reliability Statistics

Variables
Household Income
Asset Ownership
Children Education
Food Security
Housing
Enterprise Management
Income Smoothening
Overall
Number of
Items
Cronbach's Alpha
Coefficient
Guttman Split-Half
Coefficient
0.968
0.705
0.777
0.667
0.985
0.815
0.507
0.556
0.551
0.551
13
0.823
0.729
0.560
0.560
42
0.778
0.767
Source: Field Data

5.5. Validity
Validity is concern with whether the findings are really about what they appear to be
about. Thus, validity is highly linked with the credibility of a research (Silverman, 1997).
It also refers to how well the result of a research can give the right answer to the research
question (Remenyi, Williams, Money, & Swartz, 1998). The difficulty in meeting this
test is that usually one does not know what the true differences are; if one did, one would
not do the measuring. (Cooper & Emory, 1995). Field Data has explored the literature
thoroughly, building the conceptual framework, choice of tool, sampling design and data
collection methods appropriately in order to answer the research question. Also the
choice of statistical test makes Field Data valid.
In general, one can do the research about microfinance in different contexts, like as from
the client context or from the MFIs context or from both contexts. Field Data is mainly
79
focused on the clients perspective of microfinance. Use of chi-square for the present
study is consistent with the previous research (Amin, Rai, & Ropa, 2003). Rationale for
choosing chi square test for this study can best be judged through the following table.
Table 29. Rationale for choosing Chi-Square Test
No of IVs
1 IV with 2 or
more levels
(independent
groups)
No of DVs
2 or more
Measurement scale of
variables
Categorical
Objective
To
see
the
difference between
clients
and
nonclients
Source: Developed
Parametric statistics test hypotheses based on the assumption that the samples come from
populations that are normally distributed. Also, parametric statistical tests assume that
there is homogeneity of variance (variances within groups are the same). The level of
measurement for parametric tests is assumed to be interval or at least ordinal. There are
several hypothesis-testing techniques that provide alternatives to parametric tests. These
tests are nonparametric tests.
Nonparametric statistical procedures test hypotheses that do not require normal
distribution or variance assumptions about the populations from which the samples were
drawn and are designed for ordinal or nominal data. One of the advantages of
nonparametric techniques (such as Chi Square) is that it is much easier to compute.
Another unique value of nonparametric procedures is that they can be used to treat data
which have been measured on nominal (classificatory) scales. Such data cannot, on any
logical basis, be ordered numerically, hence there is no possibility of using parametric
statistical tests which require numerical data. Gamston (2006) suggests chi square test to
determine the difference between two groups. This study has chosen Chi square test to
determine the difference between established clients and incoming clients. Use of chi
80
square has been found consistent with the previous studies (Effa, Herring, 2005; Marr,
2002; Morris & Barnes, 2005; Schmidt, C.M., Kolodinsky, M, J., Flint, C., & Whitney,
B, 2006).
5.6. Chi Square Test
The Chi Square test is undoubtedly the most important and most used member of the
nonparametric family of statistical tests. Chi Square is employed to test the difference
between an actual sample and another hypothetical or previously established distribution
such as that which may be expected due to chance or probability. Chi Square can also be
used to test differences between two or more actual samples.
5.6.1. Basic Computational Equation
The level of confidence for all analysis in this study is 95% or p<0.05 as it is a rule of
thumb for social science studies.
Microfinance and Childrens Education
Table 30. Chi-Square Tests for EDU 1
Pearson Chi-Square
Likelihood Ratio
Linear-by-Linear
Association
N of Valid Cases
Value
df Asymp. Sig. (2-sided)
8.730
3
.033
8.833
3
.032
4.810
.028
384
Source: Field Data

The significant value 0.033 shows that there is a strong relationship between
microfinance participation and childrens education. 2 (3, n = 384) = .033, p<.05. It
81
means that established clients have sent higher percentage to the school as compared to
new clients.
Value
11.081
Pearson Chi-Square
Continuity Correction
Likelihood Ratio
Linear-by-Linear
Association
N of Valid Cases
Source: Field Data
df
3
Asymp. Sig. (2-sided)

.011
10.867
.012
1.144
.285
384
Significant value of .011 shows that participation in microfinance has led to more
expenditure on childrens education as compared to new clients. i-e 2(3, n = 384) = .011,
p<.05.
Pearson Chi-Square
Continuity Correction
Likelihood Ratio
Linear-by-Linear
Association
N of Valid Cases
Value
11.054
df
5

.050
10.864
.048
5
1
.054
.827
384
Source: Field Data

Results of chi square clearly reveal that significant value is equal to .05 which means that
microfinance new clients and established clients had difference in the childrens highest
education. 2(5, n = 384) = .050, p =.05.
82
Microfinance and Housing

Table 33. Chi-Square Tests for HUS 1
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
.087
df
Asymp.
Sig. (2sided)
1
.768
.033
.856
.087
.768
Exact
Sig. (2sided)
.820
.087
Exact
Sig. (1sided)
.430
.768
384
Source: Field Data

No significant difference with respect to repair and improvement in the housing
conditions was found when compared new clients with established clients because
significant value is greater than 0.05. 2(1, n = 384) = 0.768, p >.05.
Table 34. Chi-Square Tests for HUS 2
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
1.297
df
Asymp.
Sig. (2sided)
1
.255
1.058
.304
1.292
.256
Exact
Sig. (2sided)
.271
1.294
Exact
Sig. (1sided)
.152
.255
384
Source: Field Data

Results of chi square clearly disclose that no significant difference in the source of
drinking water when compared new clients with the established clients has been found. 2
(1, n = 384) = 0.255, p >.05.
83
Microfinance and Food Security

Table 35. Chi-Square Tests for FD1
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
.135
df
Asymp.
Sig. (2sided)
1
.714
.067
.796
.135
.714
Exact
Sig. (2sided)
Exact
Sig. (1sided)
.745
.134
.398
.714
384
Source: Field Data

Significant value is grater than 0.05 so it can be said safely that there has been found no
significant difference between new clients and established clients when compared for the
usage of food item (cereal) was found. 2 (1, n = 384) = 0.714, p >.05.
Table 36. Chi-Square Tests for FD 2
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Source: Field Data
Value
.348
2 (1, n = 384) = 0.555, p
df
Asymp.
Sig. (2sided)
1
.555
.228
.633
.350
.554
Exact
Sig. (2sided)
.574
.347
Exact
Sig. (1sided)
.318
.556
384
>.05
Chi-square test shows that no significant difference
between new clients and established clients with respect to usage of food item milk was
found. The significant value is 0.555.
84
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Source: Field Data
Value
.892
df
Asymp.
Sig. (2sided)
1
.345
.698
.403
.892
.345
Exact
Sig. (2sided)
.385
.889
Exact
Sig. (1sided)
.202
.346
384
Results clearly indicate that no significant difference between new clients and established
clients with respect to the usage of food item eggs was found. 2 (1, n = 384) = 0.345, p
>.05.
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
.250(b)
df
Asymp.
Sig. (2sided)
1
.617
.150
.698
.250
.617
Exact
Sig. (2sided)
.656
.249
Exact
Sig. (1sided)
.350
.618
384
Source: Field Data

Significant value is greater than 0.05 so it can be safely said that there was no difference
in usage of food item between new clients and established clients when asked about the
usage of food item meat. 2 (1, n = 384) = 0.617, p >.05.
85
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Source: Field Data
Value
3.245(b)
df
Asymp.
Sig. (2sided)
1
.072
2.859
.091
3.226
.072
Exact
Sig. (2sided)
.078
3.237
Exact
Sig. (1sided)
.046
.072
384
No significant difference in the usage of food item (fruit) between new and established
clients was found, since the significant value is greater than 0.05. 2 (1, n = 384) = 0.072,
p >.05.
Microfinance and Household Expenditure
Table 40. Chi-Square Tests for HSIN 1
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Source: Field Data
Value
3.263
df
Asymp.
Sig. (2sided)
1
.071
1.616
.204
3.017
.082
Exact
Sig. (2sided)
.105
3.255
Exact
Sig. (1sided)
.105
.071
384
No significant difference between new clients and established clients with respect to the
household expenditure in clothes and household items has been found. Significant value
is greater than 0.05. 2 (1, n = 384) = 0.71, p >.05.
86
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Source: Field Data
Value
2.162(b)
df
Asymp.
Sig. (2sided)
1
.141
1.235
.266
2.011
.156
Exact
Sig. (2sided)
.161
2.157
Exact
Sig. (1sided)
.134
.142
384
Table shows the result of chi square for use of microcredit given to spouse, no significant
difference between new clients and established clients in this expenditure has been found.
Since 2 (1, n = 384) = 0.141, p >.05.
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
.817
df
Asymp.
Sig. (2sided)
1
.366
.217
.642
.767
.381
Exact
Sig. (2sided)
.399
.815
Exact
Sig. (1sided)
.308
.367
384
Source: Field Data

Again, no significant difference between new clients and established clients when
observed with respect to the expenditure spent on house repair has been found. 2 (1, n =
384) = 0.366, p >.05.
87
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
6.191
df
Asymp.
Sig. (2sided)
1
.013
3.501
.061
6.735
.009
Exact
Sig. (2sided)
.035
6.175
Exact
Sig. (1sided)
.035
.013
384
Source: Field Data

A significant difference between new clients and established clients when asked about
spending on food items has been found since the significant value is less than 0.05. 2 (1,
n = 384) = 0.013, p <.05.
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
7.057
df
Asymp.
Sig. (2sided)
1
.008
4.921
.027
6.643
.010
Exact
Sig. (2sided)
.016
7.038
Exact
Sig. (1sided)
.016
.008
384
Source: Field Data

The table shows that a significant difference between new clients and established clients
when asked about the use of microcredit to loan it to relative has been found. 2 (1, n =
384) = 0.008, p <.05.
88
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
8.277
df
Asymp.
Sig. (2sided)
1
.004
5.483
.019
9.001
.003
Exact
Sig. (2sided)
.011
8.255
Exact
Sig. (1sided)
.011
.004
384
Source: Field Data

A significant difference has been found between new clients and established clients when
asked about expenditure in celebrations, since the significant value is less than 0.05. 2
(1, n = 384) = 0.008, p <.05.
Pearson Chi-Square
Continuity
Correction
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
1.699
df
Asymp.
Sig. (2sided)
1
.192
.679
.410
1.569
.210
Exact
Sig. (2sided)
.336
1.694
Exact
Sig. (1sided)
.201
.193
384
Source: Field Data

Result of chi-square reveals that no significant difference has been found as the value is
greater than 0.05 with respect to spending on purchase of land, when compared to new
clients with established clients. 2 (1, n = 384) = 0.192, p >.05.
89
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
5.117
Asymp.
Sig. (2Df
sided)
1
.024
3.178
.075
4.773
.029
Exact
Sig. (2sided)
Exact
Sig. (1sided)
.042
5.103
.042
.024
384
Source: Field Data

The significant value is less than 0.05 it can be said that there is a significant difference
between new clients and established clients when asked about their repaying their old
debt. 2 (1, n = 384) = 0.024, p <.05.
Pearson Chi-Square
Continuity
Correction
Likelihood Ratio
Linear-by-Linear
Association
N of Valid Cases
Value
1.298
df
2

.522
1.556
.459
.065
.799
384
Source: Field Data

The above table shows that no significant difference has been found with respect to
spending in repaying the existing loan between new clients and established clients since
the significant value is greater than 0.05. 2 (2, n = 384) = 0.522, p >.05.
90
Microfinance and Household Assets

Table 49. Chi-Square Tests for HSAS 1
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
1.385(b)
df
Asymp.
Sig. (2sided)
1
.239
1.111
.292
1.409
.235
Exact
Sig. (2sided)
.270
1.381
Exact
Sig. (1sided)
.146
.240
384
Source: Field Data

Results of chi square clearly reveal that significant value is equal to 0.239 which shows
that microfinance new clients and established clients had no difference in the ownership
of household asset refrigerator.
2 (1, n = 384) = 0.239, p > 0.05.
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
1.629
df
Asymp.
Sig. (2sided)
1
.202
1.331
.249
1.606
.205
Exact
Sig. (2sided)
.221
1.625
Exact
Sig. (1sided)
.125
.202
384
Source: Field Data

Value of p = .202, shows no significant difference has been found between new clients
and established clients in the ownership of CD player since 2 (1, n = 384) = 0.239, p
0.05.
>
91
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Source: Field Data
Value
.142
df
Asymp.
Sig. (2sided)
1
.706
.064
.801
.141
.707
Exact
Sig. (2sided)
.711
.141
Exact
Sig. (1sided)
.398
.707
384
No significant difference has been found between new clients and established clients with
respect to household asset (motor cycle) as the significant value is 0.706 and 2 (1, n =
384) = 0.706, p > 0.05.
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
.245(b)
df
Asymp.
Sig. (2sided)
1
.621
.133
.716
.247
.619
Exact
Sig. (2sided)
.695
.244
Exact
Sig. (1sided)
.361
.621
384
Source: Field Data

Results of Chi square clearly show no significant difference has been found in the
ownership of household asset (washing machine) since value of p statistics is 0.621. 2 (1,
n = 384) = 0.621, p > 0.05.
92
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
.070
df
Asymp.
Sig. (2sided)
1
.792
.016
.900
.070
.791
Exact
Sig. (2sided)
.890
.070
Exact
Sig. (1sided)
.454
.792
384
Source: Field Data

Results of chi square clearly indicate that significant value is less than 0.792 which
means that microfinance new clients and established clients had no difference in the
ownership of household asset (sewing machine) 2 (5, n = 384) = 0.792, p >.05.
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
6.738(b)
df
Asymp.
Sig. (2sided)
1
.009
6.168
.013
6.890
.009
Exact
Sig. (2sided)
.010
6.720
Exact
Sig. (1sided)
.006
.010
384
Source: Field Data

The significant value of p<.05, helps safely saying that there is a significant difference in
the ownership of household assets (Bed with foam) between new clients and established
clients. 2 (1, n = 384) = 0.009, p <.05.
93
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
.179
df
Asymp.
Sig. (2sided)
1
.672
.073
.788
.181
.670
Exact
Sig. (2sided)
.759
.179
Exact
Sig. (1sided)
.398
.672
384
Source: Field Data

Chi square test clearly reveals that no significant difference has been found in the
ownership of asset (cell-phone) between new clients and established clients. 2 (1, n =
384) = 0.672, p >.05.
Value
Pearson Chi-Square
Continuity
Correction
Likelihood Ratio
Linear-by-Linear
Association
N of Valid Cases
df
1.217
.544
1.515
.469
1.153
.283
384
Source: Field Data

It was revealed from chi square test that there is no significant difference between new
clients and established clients with respect to ownership of household assets (Television).
2 (1, n = 384) = 0.544, p >.05.
There was no indication of impact on household assets. Results of this study are consistent with
Dunn & Arbuckle, 2001 but contradict with the findings of Chen & Snodgrass, 2001 &
Barnes, 2001.
94
Microfinance and Enterprise

Table 57. Chi-Square Tests for ENT 1
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
.145
df
Asymp.
Sig. (2sided)
1
.703
.060
.807
.144
.704
Exact
Sig. (2sided)
Exact
Sig. (1sided)
.784
.145
.400
.703
384
Source: Field Data

Chi square test clearly indicates that no significant difference between new and
established clients with respect to the expansion of enterprise has been found since the
significant value is greater than 0.703. 2 (1, n = 384) = 0.703, p >.05.
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
8.039
df
Asymp.
Sig. (2sided)
1
.005
7.424
.006
7.977
.005
Exact
Sig. (2sided)
.006
8.018
Exact
Sig. (1sided)
.003
.005
384
Source: Field Data

A very low significant value shows that there is a significant difference between new and
established clients about the addition of new products in the enterprise. It means
microfinance leads to addition of new products in the enterprise. 2 (1, n = 384) = 0.005,
p <.05.
95
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
5.728(b)
df
Asymp.
Sig. (2sided)
1
.017
4.838
.028
5.394
.020
Exact
Sig. (2sided)
.020
5.713
Exact
Sig. (1sided)
.016
.017
384
Source: Field Data

Again a low significant value of 0.017 shows that there is a significant difference
between new and established clients when asked about hiring of more workers. 2 (1, n =
384) = 0.017, p <.05.
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
7.166
df
Asymp.
Exact
Sig. (2- Sig. (2- Exact Sig.
sided)
sided) (1-sided)
1
.007
6.474
.011
6.919
.009
.011
7.148
.006
.008
384
Source: Field Data

A significant difference between new and established clients has been found when asked
about improvement in the product quality as expressed by a very low significant value. 2
(1, n = 384) = 0.007, p < 0.05. This shows that microfinance leads to the improvement in
quality of product for enterprise development.
96
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
10.427
df
Asymp.
Sig. (2sided)
1
.001
9.557
.002
9.979
.002
Exact
Sig. (2sided)
.002
10.400
Exact
Sig. (1sided)
.001
.001
384
Source: Field Data

Again low significant value of 0.001 indicates that there is a significant difference
between new and established clients with respect to improved desirability of products. 2
(1, n = 384) = 0.001, p < 0.05.
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
6.889
df
Asymp.
Sig. (2sided)
1
.009
6.145
.013
6.597
.010
Exact
Sig. (2sided)
.013
6.871
Exact
Sig. (1sided)
.007
.009
384
Source: Field Data

A significant difference between new and established clients with respect to reduced
costs by purchasing in bulk has been found. 2 (1, n = 384) = 0.009, p < 0.05.
97
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
.288
df
Asymp.
Sig. (2sided)
1
.591
.183
.669
.289
.591
Exact
Sig. (2sided)
.662
.288
Exact
Sig. (1sided)
.335
.592
384
Source: Field Data

A very high significant value of 0.591 shows that no significant difference between new
and established clients has been found, when asked about the enterprise money they keep
separate from household and personal use. 2 (1, n = 384) = 0.591, p > 0.05.
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
.159
df
Asymp.
Sig. (2sided)
1
.690
.079
.778
.159
.690
Exact
Sig. (2sided)
.727
.158
Exact
Sig. (1sided)
.391
.691
384
Source: Field Data

The above table shows a very high significant value of 0.690 indicating no significant
difference between new and established clients was found with respect to profit
calculation of the enterprise. 2 (1, n = 384) = 0.690, p >0.05.
98
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Source: Field Data
Value
5.205
df
Asymp.
Sig. (2sided)
1
.023
4.668
.031
5.389
.020
Exact
Sig. (2sided)
.029
5.191
Exact
Sig. (1sided)
.014
.023
384
Chi-square test result shows that there has been found a significant difference between
new and established clients about the knowledge of most profitable product. 2 (1, n =
384) = 0.023, p <0.05.
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Source: Field Data
Value
4.992(b)
df
Asymp.
Sig. (2sided)
1
.025
4.489
.034
5.120
.024
Exact
Sig. (2sided)
.028
4.979
Exact
Sig. (1sided)
.016
.026
384
A very low significant value of 0.025 shows that there is a significant difference between
new and established clients when asked about the fixed location for production with
protection from the sun and rain for selling 2 (1, n = 384) = 0.025, p <0.05.
99
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
6.914
df
Asymp.
Sig. (2sided)
1
.009
6.316
.012
6.788
.009
Exact
Sig. (2sided)
.010
6.896
Exact
Sig. (1sided)
.006
.009
384
Source: Field Data

The results show that there is a significant difference between new and established clients
when asked about the presence of a fixed location for storing purpose. 2 (1, n = 384) =
0.009, p <0.05.
Table 68. Chi-Square Tests for ENR 12
Pearson Chi-Square
Continuity
Correction
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
9.241
df
Asymp.
Sig. (2sided)
1
.002
8.269
.004
8.725
.003
Exact
Sig. (2sided)
.005
9.217
Exact
Sig. (1sided)
.003
.002
384
Source: Field Data

There is a significant difference between the two groups of established and new clients
about the major investment in the enterprise. The significance value is 0.002, which is
very low. 2 (1, n = 384) = 0.002, p <0.05.
100
Table 69. Chi-Square Tests for ENR 13
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
.005(b)
df
Asymp.
Sig. (2sided)
1
.945
.000
1.000
.005
.945
Exact
Sig. (2sided)
1.000
.005
Exact
Sig. (1sided)
.517
.945
384
Source: Field Data

Results show a very high significant value which means that no significant difference
between new and established clients has been found when asked about the minor
investment in the enterprise 2 (1, n = 384) = 0.945, p >0.05.
Table 70. Chi-Square Tests for INS 1
Pearson Chi-Square
Continuity
Correction(a)
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
.360(b)
df
Asymp.
Sig. (2sided)
1
.549
.241
.624
.360
.548
Exact
Sig. (2sided)
.586
.359
Exact
Sig. (1sided)
.312
.549
384
Source: Field Data

High significant value reveals that no significant difference has been found between new
and established clients when asked about their view point about money not enough for
the enterprise.
101
Table 71. Chi-Square Tests for INS 2
Pearson Chi-Square
Continuity
Correction
Likelihood Ratio
Fisher's Exact Test
Linear-by-Linear
Association
N of Valid Cases
Value
2.660
df
Asymp.
Sig. (2sided)
1
.103
2.281
.131
2.722
.099
Exact
Sig. (2sided)
.117
2.653
Exact
Sig. (1sided)
.064
.103
384
Source: Field Data

Again, significant value of 0.103 reveals that no significant difference has been found
between new and established clients when asked about the repayment problems of
microcredit. 2 (1, n = 384) = 0.103, p >0.05.
Following table shows the result of chi square at glance.
Table 72. Chi Square Results at a Glance: Summary Table
Hypotheses
Variables
Tested at
Significance Level
Status
Upheld/Rejected
H1a
H1b
H1c
H2a
H2b
H3a
H3b
H3c
H3d
H3e
H4a
H4b
H4c
H4d
H4e
H4f
H4g
H4h
H4i
H5a
H5b
H5c
H5d
H5e
EDU 1
EDU 2
EDU 3
HUS 1
HUS 2
FD 1
FD 2
FD 3
FD 4
FD 5
HSIN 1
HSIN 2
HSIN 3
HSIN 4
HSIN 5
HSIN 6
HSIN 7
HSIN 8
HSIN 9
HSAS 1
HSAS 2
HSAS 3
HSAS 4
HSAS 5
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
Supported
Supported
Supported
Rejected
Rejected
Rejected
Rejected
Rejected
Rejected
Rejected
Rejected
Rejected
Rejected
Supported
Supported
Supported
Rejected
Supported
Rejected
Rejected
Rejected
Rejected
Rejected
Rejected

H5f
H5g
H5h
H6a
H6b
H6c
H6d
H6e
H6f
H6g
H6h
H6i
H6j
H6k
H7a
H7b
H8a
H8b
HSAS 6
HSAS 7
HSAS 8
ENT 1
ENT 2
ENT 3
ENT 4
ENT 5
ENT 6
ENT 7
ENT 8
ENT 9
ENT 10
ENT 11
ENR 12
ENR 13
INS 1
INS 2
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
102
Supported
Rejected
Rejected
Rejected
Supported
Supported
Supported
Supported
Supported
Rejected
Rejected
Supported
Supported
Supported
Supported
Rejected
Rejected
Rejected
Source: Field Data
5.7 Econometric Evidence: Logistic Regression

Since the probability of an event must lie between 0 and 1, it is impractical to model
probabilities with linear regression techniques, because the linear regression model
allows the dependent variable to take values greater than 1 or less than 0. The logistic
regression model is a type of generalized linear model that extends the linear regression
model by linking the range of real numbers to the 0-1 range. Multinomial logistic
regression does not make any assumptions of normality, linearity, and homogeneity of
variance for the independent variables.
In certain aspects, logistic regression is similar to chi-square as like chi-square it
calculates likelihood ratio chi-square and Pearson chi-square; however, one can add
additional predictor variables. These additional predictors can be either categorical or
continuous and this can not be done with a simple Pearson Chi-Square. Use of logistic
regression (Cramer, 2003) was found to be consistent with previous studies. (Bekele &
Muchie; Fuster, Mutonyi, Houser & Coates, 2008; Kamal & Haider, 2008 & Mersland &
103
Strom, 2008; Mohindra, Haddad & Narayana, 2008; Pagura, Graham & Meyer,
2001;Seiber & Miller, 2004).
The advantage of using the regression framework is that it can account for the differences
in household and community characteristics which can happen even with a well-designed
sampling scheme in a quasi-experimental design. (Kondo et al, 2008).
Before getting into the estimation procedure, it is imperative to describe the nature of the
treatment variables and the outcome variables considered in the study.
Outcome variables: Several outcome variables are considered in this study, namely: (a)
at household level, children education, housing, nutrition choice, household expenditure,
household assets, (e) at enterprise level, financial performance, enterprise resource base
and income smoothening.
Treatment variables: There are four possible treatment variables that can be used to
assess the impact of microfinance. These are: (1) number of years the clients spent in the
program (2) amount/value of loans availed (3) number of loan cycles. Treatment variable
1 and 2 are deemed better in representing program availability (Coleman, 1999). Present
study has taken (1) as the treatment variable to assess the impact of microfinance.
Other Independent Variables.
Other independent variables are included in the control function, such as sex, age,
education, type of area, number of households and number of salaried persons.
This study chooses to model the relationship between, participation in the program
(incoming clients) for less number of years vs. more number of years (established
clients). Difference in the two groups with respect to variables childrens education,
housing, food security, household expenditure, household assets, financial performance,
104
enterprise resource base and income smoothening can be attributed to the impact of
microfinance.
Following expression explains the effect of treatment variable on variable of interest by
taking into account certain additional independent variables such as sex, age, education,
number of households, number of salaried persons and type of area.
Y = + 1sex + 2age + 3education + 4number of households + 5number of salaried
persons+ 6type of area + Ti
Where,
Y= household/enterprise outcome of interest
Ti = treatment variable1 if membership was 2-5 years
0 if membership was less than 1or 1 year
Similar expressions have been formulated in previous studies (Coleman, 1999; Kondo et
al., 2008; Montgomery, 2005) in and had employed nearly identical evaluation strategy.
Present study analyses the data by using SPSS16.
Multicollinearity in the multinomial logistic regression solution is detected by examining
the standard errors for the b coefficients. A standard error larger than 2.0 indicates
numerical problems, such as multicollinearity among the independent variables, zero
cells for a dummy-coded independent variable because all of the subjects have the same
value for the variable, and 'complete separation' whereby the two groups in the dependent
event variable can be perfectly separated by scores on one of the independent variables.
None of the independent variables in this analysis had a standard error larger than 2.0.
105
Household Level
Following table provides summary of results for multinomial logistic regression for
household welfare (children education, housing and food). The level of confidence for all
analysis in this study is 95% or p<0.05 as it is a rule of thumb for social science studies
Table 73. Summary of Multinomial Logistic Regression for Education, Housing and Food
IVS/DVS
EDU 1
EDU 2
EDU 3
HUS 1
HUS 2
FD 1
FD 2
FD 3
FD 4
FD 5
Category
.024
.069
.308
.666
.790
.792
.909
.319
.941
.121
Sex
.033
.321
.462
.665
.020
.352
.608
.381
.733
.193
Age
.138
.008
.010
.602
.560
.660
.120
.052
.116
.865
Education
.221
.000
.042
.755
.466
.067
.574
.335
.704
.009
No of Household
.000
.000
.000
.104
.047
.154
.860
.735
.862
.034
No of salaried Persons
.001
.000
.009
.019
.004
.007
.025
.073
.331
.557
Type of Area
.692
.544
.340
.528
.000
.918
.523
.915
.108
.027
Source: Developed
Results clearly reveal that significant difference was observed about the percentage of
school going children between new and established clients. Among other independent
variables, sex, number of households and number of salaried persons contributed to the
model.
Results of expenditure on children education clearly indicate that age, education, number
of household and number of salaried persons contributes to the model however, and sex
of the respondent and type of area does not have any relationship with children education
expenditure.
Age, education, number of household and number of salaried persons have significant
relationship with the children highest education, however, sex and type of area does not
contribute to the model.
106
To summarize the results of education variable, it can be stated that number of household
and number of salaried persons were the most important variable however type of area
has no relationship with education
For HUS 1, It is very obvious from the statistics given in the table that only number of
salaried persons has a significant relationship and rests of all other variables do not
Results of source of drinking water clearly indicate that sex, number of household,
number of salaried persons and type of area does contribute to the model. However, Age
and education does not contribute to the model.
To summarize the housing, it can be stated that number of salaried persons has the most
significant importance; however, type of area has the most significant relationship for
source of drinking water. Age and education has no relationship with housing.
For FD 1, it can be clearly stated that only number of salaried persons contributed to the
model. Age and education of the respondents, number of household, number of salaried
persons and type of area do not contribute to the model.
Again only the number of salaried persons contributed to the model. Rest of all other
variables has no relationship for FD 2.
Results clearly indicate that none of the variables for food item eggs and meat has
contributed to the model.
Statistics in the table clearly indicate that education has the most significant contribution
to the model, however, number of households and type of area also has the significant
relationship for FD 5.
107
In summary, it can be safely said that for food security, number of salaried persons and
education were found to be the most important variables contributing to the model.
Table 74. Summary of Multinomial Logistic Regression for Household Expenditures
IVS/DVS
HSIN 1
HSIN 2
HSIN 3
HSIN 4
HSIN 5
HSIN 6
HSIN 7
HSIN 8
HSIN 9
Category
.351
.289
.573
.096
.008
.096
.657
.061
.231
Sex
.033
.096
.424
.999
.531
.007
.098
.159
.829
Age
.123
.630
.435
.287
.657
.003
.202
.108
.990
Education
.053
.029
.217
.029
.076
.003
.492
.277
.499
No of Household
.127
.623
.115
1.000
.729
.250
.171
.075
.176
.073
.153
.372
.021
.042
.005
.200
.314
.754
Type of Area
.158
.525
.317
.999
.595
.999
.083
.103
1.000
Source: Developed
Results clearly indicate that for HSIN 1 only sex has contributed to the model whereas
rest of the other variables have no significant contribution to the model.
It is very clear from the statistics for HSIN 2 given in the table that only education has
significantly contributed to the model, rest of other variables have no relationship.
None of the variables has significantly contributed to the model for HSIN 3.
For HSIN 4 number of salaried persons and education has contributed to the model; rest
of other variables has no relationship.
Number of salaried persons has contributed to the model, whereas, sex, age, education,
number of households and type of area has no relationship for HSIN 5.
For HSIN 6 sex, age, education and number of salaried persons has contributed to the
model, number of household and type of area dont have any relationship.
None of the variables for HSIN 8 purchase of land, HSIN 9 repayment of old loans and
HSIN 10 repayment of existing loan has contributed to the model.
In summary, it can be stated that for household expenditure; number of household and
education has significantly contributed to the model.
108
Table 75. Summary of Multinomial Logistic Regression for Household Assets

IVS/DVS
HSAS 1
HSAS 2
HSAS 3
HSAS 4
HSAS 5
HSAS 6
HSAS 7
HSAS 8
Category
.246
.266
.433
.801
.343
.005
.629
.623
Sex
.334
.868
.704
.707
.427
.184
.268
.320
Age
.753
.650
.024
.013
.039
.202
.548
.829
Education
.000
.634
.699
.000
.020
.000
.003
.122
No of Household
Type of Area
.221
.116
.129
.147
.541
.419
.498
.760
.010
.161
.177
.006
.131
.436
.000
.026
.883
.098
.242
.650
.001
.232
.015
.010
Source: Developed
Results clearly indicate that education has significantly contributed to the model for
HSAS 1 none of the variable has significantly contributed to the model for HSAS 2.
Age and type of area have significantly contributed to the model; whereas rest of other
variables has no relationship for HSAS 3.
For HSAS 4 age, education and type of area have significantly contributed to the model
as can be seen in the table.
Age, education and type of area significantly contributed to the model for HSAS 5.
Results clearly indicate that for HSAS 6 education and numbers of households have the
most significant contribution to the model.
Education and type of area contribute to the model given in the table for HSAS 7.
Results clearly indicate that number of salaried persons and type of area contributed to
the model for HSAS 8.
In summary it can be stated that for household assets, type of area, education and age
significantly contribute to the model.
Micro Enterprise Level
Results clearly reveal that education contributes to the model whereas rests of other
variables do not have any contribution for ENT 1.
109
For ENT 2 participation in the microfinance program has contributed to the model. None
of the variables has any contribution to the model.
Participation in the program and number of salaried persons has contributed to the model
whereas rest of all other variables has no contribution for ENT 3.
Participation in the program has a significant value of 0.014 hence contributed to the
model for ENT 4. Rest of all other variables has no contribution.
The table shows that participation in the program and number of salaried persons has
significantly contributed the model for ENT 5.
Results clearly reveal that participation in the program, age, number of households,
number of salaried persons and type of area significantly contribute to the model for ENT
6. Number of salaried persons significantly contributed to the model for ENT 7.
For ENT 8 none of the variables has significantly contributed to the model.
Participation in the program, number of households and type of area significantly
contribute to model rest of all other variables has no relationship for ENT 9.
None of the variables has significantly contributed to the model for ENT 10.
Results clearly reveal that participation in the program and sexes have contributed to the
model for ENT 11. Rest of all other variables have no relationship.
In summary it can be stated that for enterprise development number of household and
number of salaried persons have significantly contributed to the model. The table
indicates that participation in the program, education and type of area significantly
contribute to the model for ENR 12. For ENR 13 sex, education and type of area
significantly contribute to the model. Rest of all other variables has no relationship. In
summary, for enterprise resource base, education and type of area significantly
110
contributed to the model. For INS 1 number of salaried persons and type of area
significantly contribute to the model. None of the variables have significantly contributed
to model for INS 2. To summarize, the income smoothening effect, numbers of salaried
persons and type of area have significantly contributed to the model.
Table 76. Summary of Multinomial Logistic Regression for Enterprise Management
ENT
ENT
ENT
ENR
ENR
INS
INS
10
11
12
13
.396
.014
.061
.035
.024
.916
.321
.180
.432
.887
.392
.114
.001
.672
.029
.088
.252
.044
.801
.103
.070
.060
.893
.196
.123
.691
.559
.944
.526
.525
.511
.142
.639
.514
.023
.011
.099
.923
.875
.162
.032
.478
.387
.000
.268
.511
.377
.379
.480
.068
.007
.776
.001
.049
.007
.099
.129
.342
.452
.302
.302
.000
.660
.655
.818
.068
.015
.234
.334
.000
.401
.549
.025
.029
.005
.138
ENT
1
ENT
2
ENT
3
ENT
4
ENT
5
ENT
6
ENT
7
ENT
8
Category
.506
.012
.043
.014
.001
.007
.407
Sex
.498
.390
.085
.904
.632
.919
Age
.182
.121
.761
.391
.422
Education
.002
.097
.148
.120
No of Household
.213
.227
.051
.349
.295
.880
.657
IVS/DVS
No of salaried
Persons
Type of Area
Source: Developed
111
Following table presents the summary of multinomial logistics regression.

Table 77. Multinomial Regression Results at a Glance: Summary Table
Variable
EDU1
EDU2
EDU3
HUS1
HUS2
FD1
FD2
FD3
FD4
FD5
HSIN1
HSIN2
HSIN3
HSIN4
HSIN5
HSIN6
HSIN7
HSIN8
HSIN9
HSAS1
HSAS2
HSAS3
HSAS4
HSAS5
HSAS6
HSAS7
HSAS8
ENT1
ENT2
ENT3
ENT4
ENT5
ENT6
ENT7
ENT8
ENT9
ENT10
ENT11
ENR12
ENR13
INS1
INS2
Participation
in the
Microcredit
S
R
R
R
R
R
R
R
R
R
R
R
R
S
S
R
R
R
R
R
R
R
R
R
S
R
R
R
S
S
S
S
S
R
R
S
R
S
S
R
R
R
Source: Developed
R = Rejected
S = Supported
Sex
S
R
R
R
S
R
R
R
R
R
S
S
R
R
R
S
R
R
R
R
R
R
R
R
R
R
R
R
R
R
R
R
R
R
R
R
R
S
R
S
R
R
Age
R
S
S
R
R
R
R
S
R
R
R
R
R
R
R
S
R
R
R
R
R
S
S
S
R
R
R
R
R
R
R
R
S
R
R
R
R
R
R
R
R
R
No of
household
Education
R
S
S
R
R
S
R
R
R
S
S
S
R
S
R
S
R
R
R
S
R
R
S
S
S
S
R
S
R
R
R
R
R
R
R
R
R
R
S
S
R
R
S
S
S
R
S
R
R
R
R
S
R
R
R
R
R
R
R
R
R
R
R
R
R
R
S
R
R
R
R
S
R
R
S
R
R
S
R
R
R
R
R
R
No of salaried
persons
S
S
S
S
S
S
S
S
R
R
S
R
R
S
S
S
R
R
R
R
R
R
R
R
R
R
S
R
R
S
R
S
S
S
R
R
R
R
R
R
S
R
Type of area
R
R
R
R
S
R
R
R
R
S
R
R
R
R
R
R
R
R
R
R
R
S
S
S
R
S
S
R
R
R
R
R
S
R
R
S
R
R
S
S
S
R
112
Chapter 6
Interpretation
Interestingly, microfinance impact assessment studies produce mixed evidence, it is clear
that there is no clear-cut or definite answer regarding the impact of microfinance
schemes. Conclusions might differ because of different methodologies used, because of
diverse subjective interpretations given to the same research findings, or because of the
particular features of the program one is studying (Holvoet, 2004).
The present study also provides mixed results: while no negative effects are identified,
positive and significant loadings are found in several, but not all cases. This result is
similar to other studies on the provision of microcredit in Bangladesh, India, Indonesia,
Sri Lanka, and northeastern Thailand.
The findings suggest that targeting microfinance on the poorest households may not be
the most appropriate way to help them escape poverty. The projects selected by the
poorest households to finance with microcredit loans did not generate sufficient profit to
increase household income (ADB, 2007).
There are examples of many other studies that are either inconclusive or provide less
convincing results. Coleman (1999) and MkNelly, Watetip, & Dunford (1996) both focus
on experiences with village banking in Thailand.
Maldonado (2005) presents ambiguous results on Bolivia, where the availability of credit
in rural activities has seemingly driven parents to use their childrens labor supply in new
productive projects.
113
6.1 Household Level

Starting from household level, interpretation of the results will be moved to enterprise
level and demographic characteristics.
Education
Following hypotheses were developed to measure the impact of microfinance on children
education as stated earlier in chapter 3.
H 1a: Participation in the program leads to increase in percentage of school going children
H 1b: Participation in the program leads to more expenditure on childrens education.
H 1c: Participation in the program leads to increase the highest level of children education.
It is evident from the data analysis that there is a strong relationship between
microfinance participation and percentage of school going children. Participation in
microfinance has led to more expenditure on childrens education as compared to new
clients. However, microfinance new clients and established clients had difference in the
childrens highest education. These results are consistent with several studies.
(Chowdhury & Bhuiya 2001; Effa & Herring, 2005; Holvoet, 2004; Neponen, 2003;
Rosintan, D.M., Drioadisuryo P., & Cloud, K. 1999; Sengsourivong, 2006). However,
these results contradict with the findings of previous studies (Coleman, 1999; Kondo, et
al. 2008).
For each hypothesis, role of other independent variables such as sex, age, education,
number of households, number of salaried persons and type of area were modeled by
applying multinomial regression. These variables used in the control functions are similar
to those used in existing literature. (Coleman 1999; Kondo et al, 2008; Montgomery
2005).
114
Results of multinomial regression for clearly H 1a indicate that participation in the

microfinance program, sex, number of households and number of salaried persons
contributed to the model, since p<0.05. So it can be said that these variables have a
contribution for percentage of school going children. For EDU 1, age, education, number
of household and number of salaried persons contributes to the model since significant
values are less than 0.05. However, participation in the microfinance has no significant
impact on expenditure on childrens education (EDU 2). Age, education, number of
household and number of salaried persons have significant relationship with the children
highest education (EDU 3) having significant values less than 0.05, however,
participation in the microfinance program has no impact on children highest education.
Housing
Following hypotheses were developed to measure the impact of microfinance on housing
as stated earlier in chapter 3.
H 2a: Participation in the program leads to improve the housing conditions.
H 2b: Participation in the program leads to improve drinking water source.
As it is evident from the table no significant difference with respect to repair and
improvement in the housing conditions when compared new clients with established
clients has been found. The significant value is 0.768. For hypothesis H 2b, no significant
difference in the source of drinking water was found. These results are supported by
Kondo et al, 2007 and contradict with some of the studies (Chen, A, M., & Snodgrass, D.,
2001; Neponen, 2003). It was observed that most of the microfinance clients used to
build their houses illegally. That was the main reason for not finding out any difference in
their housing conditions. Mosley (2001) found similar observations in a study conducted
in Bolivia where clients used to live in illegal housing. Some of those were seriously
115
dangerous because they were situated in areas of slide risk on the near-vertical
escarpments surrounding the city. Actually these people constitute a major market for
microfinance in developing countries. Hence, housing cannot be considered a very strong
indicator for poverty.
Multinomial logistic regression results show that for HUS 1, only number of salaried
persons contributed to the model, as the value of p=0.019 indicates. Results for HUS 2,
source of drinking water clearly indicate that sex, number of household, number of
salaried persons and type of area does contribute to the model. However, participation in
the microfinance program has no contribution to housing.
Food Security
Following hypotheses were developed to measure the impact of microfinance on
consumption of nutritious food items as stated earlier in chapter 3.
H 3a: Participation in the program leads to increase the consumption of food item (cereals).
H 3b: Participation in the program leads to increase the consumption of food item (milk).
H 3c: Participation in the program leads to increase the consumption of food item (eggs).
H 3d: Participation in the program leads to increase the consumption of food item (meat).
H 3e: Participation in the program leads to increase the consumption of food item (fruit).
Results of chi square clearly indicate that no significant difference between new and
established clients with respect to usage of nutritious food item was found. As it is
evident from table, for hypothesis H 3a, p = 0.71, H 3b, p = 0.55, H 3c, p = 0.34, H 3d, p =
0.61 and H 3e, p = 0.07. So it can be safely said that program participation has not
influenced the choice of nutritious food items. These results are supported by the
previous study of Barnes, 2005. Only mildly significant positive impacts were observed
by Kondo et al, 2008. However, findings of this study contradict with some of the studies
(Barnes, 2001; Effa & Herring, 2005; Kondo, 2007; Neponen, 2003; Rosintan et al,
1999). Reason for rejection of these hypotheses is that clients do not prefer to spend in
116
food items when they have priorities of other household expenses and they try to meet the
minimum requirement for living. Another reason is that clients were sensitive when
asked about usage of certain food items like meat and fruits.
Role of other independent variables can be explained with the help of multinomial
logistic regression. For FD 1, number of salaried persons contributed to the model, since
p=0.007. However, Participation in the microfinance program, age and education of the
respondents, number of household, number of salaried persons and type of area do not
For FD 2, p=0.025 only number of salaried persons has
significant value. It can be said that consumption of food items, cereals and milk do not
increase with the participation of microfinance program but only with the increased
number of salaried persons. None of the variables has contributed for FD 3 and FD 4. For
FD 5 education, number of households and type of area has contributed to the model
since significant values are 0.009, 0.034 and 0.027 respectively. Hence it can be said that
participation in the microfinance program has not significantly improved nutrition choice.
Households Expenditure
household expenditure as stated earlier in chapter 3.
H 4a: Participation in the program leads to increase household expenditure in clothes and
household items.
H 4b: Participation in the program leads to increase the likelihood to provide it to spouse.
H 4c: Participation in the program leads to improve expenditure on house repair.
H 4d: Participation in the program leads to increase spending in food items.
H 4e: Participation in the program leads to increase the loaning activity to relatives.
H 4f: Participation in the program leads to increase the expenditure in celebrations.
H 4g: Participation in the program leads to purchase of land.
H 4h: Participation in the program leads to repay old loans.
H 4i: Participation in the program leads to repay existing loans.
117
Results of chi square show that significant value is 0.07, being greater than 0.05, which
does not support H 4a. Only H 4d, H 4e and H 4f are supported having significant values
of 0.01, 0.008 and 0.004 respectively. H 4b is also rejected as significant value is 0.14.
The significance value is 0.36, which does not support H 4c. Similarly H 4g is rejected
since significance value is 0.19. Further H 4h is also supported having significance value
of 0.02. H 4i is rejected having significance value of 0.52.
These findings are supported by the previous studies, Alexander, 2006 and Effa &
Herring, 2005 who have shown a positive impact of microfinance on household
expenditure. Morduch (1998), however, argued that the eligible households that
participated in the microfinance programs have strikingly less consumption levels than
the eligible households living in villages without the programs. Same has been observed
in the present study for H4b H4c, H4g and H 4i.
Analysis of multinomial logistic regression revealed that for HSIN 1, only sex has
contributed to the model having p = 0.033. For HSIN 2, only education has significantly
contributed to the model having p = 0.029. For HSIN 3, none of the variables has
contributed to the model. Number of salaried persons and education having significant
values of 0.029 and 0.021 has contributed for HSIN 4. Participation in the microfinance
program and number of salaried persons has contributed to the model for HSIN 5, having
significant values of 0.008 and 0.042 respectively. Sex, age, education and number of
salaried persons has contributed to the model, since p<0.05, for HSIN 6. None of the
variables for HSIN 7, purchase of land, HSIN 8, repayment of old loans and HSIN 9,
repayment of existing loan has contributed to the model.
118
So it can be safely said that microfinance participation has no impact on household

expenditure with only exception to one household expenditure i-e loaned to relatives.
Household Assets
household assets as stated earlier in chapter 3.
H 5a: Participation in the program leads to the ownership of household asset (Refrigerator).
H 5b: Participation in the program leads to the ownership of household asset (CD player).
H 5c: Participation in the program leads to the ownership of household asset (motorcycle)
H 5d: Participation in the program leads to the ownership of household asset (washing
machine)
H 5e: Participation in the program leads to the ownership of household asset (sewing
machine)
H 5f: Participation in the program leads to the ownership of household asset (bed with foam)
H 5g: Participation in the program leads to the ownership of household asset (cell phone)
H 5h: Participation in the program leads to the ownership of household asset (television)
All the above hypotheses except for H 5f are rejected. Significance value for H 5f is
0.009, which permits safely saying that there is a significant difference between new and
established clients about the ownership of asset i-e bed with foam. Significance value for
H 5a is 0.239; hence it is rejected. Similarly values for H 5b, H 5c, H 5e, and H 5f are
0.202, 0.706, 0.672 and 0.544 respectively. Since p> 0.05 hence all these hypotheses are
rejected. Overall, it can be concluded that there is no significant impact of microfinance
on household assets, since only one of the hypothesis was accepted. Main reason behind
rejection of these hypotheses is that most of the clients had these household assets already
in their ownership. This was possible because of dowry which is the tradition of our
culture. Hence participation in the program does not lead to purchase of such household
assets. These results are supported by Kondo et al, 2008, who found no significant impact
of the microfinance program on any of the four classes of household assets. Mckernan
119
(2002) found an inverse relationship between participation in program and household

assets. However these results contradict with Kondo, 2007; Sebstad, J. & Chen, G. 1996
& Sengsourivong, 2006.
A survey conducted on Khushali Bank by Setboonsarng & Parpiev, 2008 revealed that
borrowers owned significantly more household assets. These findings contradict with the
present study reason being that this study has controlled for selection bias by taking new
clients as the control group.
Results of multinomial regression for HSAS 1 reveal that only education has significantly
contributed to the model having significant value of 0.000. For HSAS 2 none of the
variables in the equation has contributed to the model. Age and type of area has
significantly contributed, having significance values of 0.024 and 0.010 respectively. Age
and type of area has contributed to the model having significant values of 0.024 and
0.010 respectively. Again for HSAS 4, age, p = 0.013, education, p = 0.000 and type of
area, p = 0.006 has significantly contributed to the model. Age, education and type of
area have significantly contributed to the model having values of 0.039, 0.020 and 0.000
for HSAS 5. For HSAS 6, participation in the program, education and number of
households has significantly contributed to the model, having values of 0.005, 0.000 and
0.026 respectively. Education and type of area have significant values of 0.003 and 0.001
respectively for HSAS 7. Number of salaried persons and type of area has significant
values 0.015 and 0.010 respectively for HSAS 8, hence contributed to the model.
It can be concluded that participation in the microfinance program has led to the
ownership of only one asset i-e HSAS 5, bed with foam. However, significant
relationships were found for other variables.
120
6.2 Micro-enterprise Level

enterprise for financial performance as stated earlier in chapter 3.
H 6a: Participation in the program increase expansion of enterprise.
H 6b: Participation in program leads to addition of new products in the enterprise.
H 6c: Participation in the program leads to hiring more workers in the enterprise.
H 6d: Participation in the program leads to improve the product quality of enterprise.
H 6e: Participation in the program leads to improve desirability of products.
H 6f: Participation in the program leads to reduce costs by purchasing in bulk.
H 6g: Participation in the program leads to keep enterprise money separate from household
and personal use.
H 6h: Participation in the program leads to make profit calculation based on cost and
earnings.
H 6i: Participation in the program leads to improve on the knowledge of most profitable
product. 0.023
H 6j: Participation in the program leads to have a fixed location for production.
H 6k: Participation in the program leads to have a fixed location for storing.
Significance values for H 6a, H 6g and H 6h are 0.703, 0.591 and 0.690 respectively,
which do not support the hypotheses. These hypotheses are related to expansion of
enterprise, keeping enterprise money separate from personal use and profit calculation
based on cost and revenues. These findings are consistent with Shetty, 2008, who
explains that microfinance has failed in unleashing the micro entrepreneurship among the
poor. Reason for rejection of these hypotheses is clients do not have the guidance about
management of enterprise money and decisions pertaining to reinvestment. Clients are
unable to segregate enterprise money from personal use and do not know how to
calculate profits. However, rest of all other hypotheses were supported since p<0.05.
Significance value for H 6b is 0.005 which supports this hypothesis about addition of
new products between new and established clients.
Since the significance value is 0.017 which means H 6c is accepted. H 6d is also
supported since value is 0.007 i-e p <0.05. For H 6e, significance value is 0.001 hence,
121
this hypothesis is also supported. Similarly, H 6f, H 6j and H 6k are also supported since
the significance values are 0.009, 0.025 and 0.009 respectively. Results of hypothesis 6b,
6e, 6f and 6i are consistent with Morris & Barnes (2005).
Out of eleven hypotheses only three are rejected. Overall, it can be concluded that
participation in the microfinance has led to increase the financial performance of the
enterprise which ultimately transfers to increase the well being of household that
alleviates poverty. These results are supported by previous study by Kondo (2007) that
explains positive impact on employment, which is supported by this research as well.
Multinomial regression results report that for ENT 1, expansion of enterprise only
education has significantly contributed to the model, p=0.002. For ENT 2, participation
in the microfinance program has significantly contributed to the model, p=0.012.
Participation in the program and number of salaried persons has significantly contributed
to the model for ENT 3, having significant values of 0.043 and 0.007 respectively. For
ENT 4, participation in the program has a significant value of 0.014 hence contributed to
the model. Results show that participation in the program and number of salaried persons
has significantly contributed to the model for ENT 5 having values of 0.001 and 0.001
respectively. For ENT 6, participation in the program, age, number of households,
number of salaried persons and type of area significantly contribute to the model having
significant values of 0.007, 0.044, 0.032, 0.049 and 0.015 respectively. For ENT 7,
Number of salaried persons having significant value of 0.007 shows contribution to the
model. Participation in the program, number of households and type of area significantly
contributed to the model for ENT 9, since significant values are 0.014, 0.000 and 0.000
respectively. None of the variables have significantly contributed to the model for ENT 8
122
and ENT 10. For ENT 11, Participation in the program and sex has significantly
It can be concluded that there has been found significant difference between new and
established clients for addition of new products, to improve the product quality, to
improve desirability of products, reduced costs by purchasing in bulk, kept money
separate from household and personal use and fixed location for storing.
Enterprise Resource Base
enterprise resource base as stated earlier in chapter 3.
H 7a: Participation in the program leads to increase the major investment in the enterprise.
H 7b: Participation in the program leads to increase the minor investment in the enterprise.
Results of chi square clearly demonstrate that significance value for H 7a is 0.002, which
means that there was found significance difference between new and established clients
with respect to major investment. However, for H 7b significance value is 0.945, hence it
is rejected.
For ENR 12, Participation in the program, education and type of area has significantly
contributed to the model, having values of .024, .023 and .025 respectively. It means that
participation in the program has led the clients to improve on their major investment in
the enterprise. Sex, education and type of area having significant values of 0.029, 0.011
and 0.029 respectively has contributed to the model for minor investment in the
enterprise.
123
Income-Smoothening Effect
Following hypotheses were developed to measure the impact of microfinance on Incomesmoothening effect as stated earlier in chapter 3.
H 8a: Participation in the program assists clients to survive periods of reduced cash flow.
H 8b: Participation in the program leads to reduce the repayment problems.
Results of chi square clearly show that participation in microfinance did not have any
effect on income smoothening, since value for H 8a is 0.549, hence it is rejected.
Similarly, H 8b is rejected, since significance value is 0.103.
124
Chapter 7
Conclusion and Recommendations
7.1. Salient Findings
Results of chi square test are summarized as below:
Strong positive impact on children education and enterprise financial performance.
Mixed evidence on food security, household expenditures and household assets.
No impact has been observed on housing and income smoothening of enterprise.
Results of multinomial logistic regression are given below:
Number of household and number of salaried persons were the most important
variable however type of area has no relationship with children education.
For housing, it can be stated that number of salaried persons has the most
significant importance; however, type of area has the most significant relationship
for source of drinking water. Age and education has no relationship with housing.
Number of salaried persons and education were found to be the most important
variables contributing to the model for food security.
For household expenditure; number of household and education has significantly
Household assets, type of area, education and age significantly contribute to the
model.
For enterprise financial performance, number of household and number of
salaried persons have significantly contributed to the model.
125
Education and type of area significantly contributed to the model for enterprise
resource base.
For income smoothening effect, number of salaried persons and type of area has
significantly contributed to the model.
7.2. Conclusion
Present study was designed to gauge the impact of microfinance on poverty. Indicators
were taken at household and enterprise levels, the improvement of which could alleviate
poverty. Additionally, some other independent variables were taken into the analysis. The
study adapted AIMS Seep tool as a baseline and modified in the cultural context. Data
was collected from four different microfinance institutions. Overall it comes out with
mixed evidence on household and enterprise levels.
Results show that microfinance has a strong positive impact on children education and
enterprise financial performance. However, there is mixed evidence found on food
security, household expenditures and household assets. No impact has been observed on
housing and income smoothening of enterprise. Among other independent variables, it
was revealed that number of salaried persons was found to be very important variable
contributing to the wellbeing of the microfinance clients.
7.3. Practical Implications
Present study has specifically looked into the impact of variables that might have a
relationship on wellbeing of clients at household and enterprise level as such impact
studies are source of valuable information for MFIs targeting the microfinance. MFIs will
be able to refine their eligibility criteria before getting into the loaning procedure. Present
study finds very strong implication for childrens education and at enterprise level for
126
financial performance and enterprise resource base. Present study can be very useful to
IA practitioners and policy makers. Despite the limitations, the study makes a meaningful
contribution in the literature of impact assessment of microfinance in general and
Pakistan in particular.
7.4. Limitations
Microfinance clients are geographically dispersed and it incurs heavy costs while
visiting them. Even within a locality where the clients reside the distance between the
clients is 1-5 kilometers. Comparatively, cost of conducting interviews in rural area is
very high where clients are residing at a considerable distance as compared to urban
area. It includes all the related costs such as cost of visiting the field, costs of
transport, photocopying the survey forms etc. Rural survey samples are generally
more expensive per survey than urban survey samples. Since present study has also
taken interviews from rural area, the cost was one of the biggest limitations.
At certain places presence of representative of microfinance institution was
necessary, which makes the clients opinion biased.
Clients became emotional when asked questions regarding indicators of food in
particular hence the response was biased
There is a deep rooted nationwide network of microfinance institutions. Data for the
present study was collected from the twin cities of Rawalpindi and Islamabad due to
resource constraints. Future researches can be extended by taking sample from all
major cities of Pakistan.
127
Clients recommended that amount of loan was too small to start up with new
establishment. If the microfinance clients could be given a substantial amount of
loans then they would have explored much better investment opportunity.
Regarding the ownership of house, it was revealed that most of the clients had their
own residence; however, their houses were built in places which were unauthorized
encroachments and can be demolished by Capital Development Authority (CDA) at
anytime without notification.
Clients complained that microfinance institutions were charging very high interest
rate specially charges for opening of account with the respective bank, insurance
charges, penalty for late payments and certain other service charges. It poses high
financial burden on microfinance clients. The transaction cost is substantial and
programs have been relying on donors for sustaining their operations.
7.5. Recommendations
Selection of businesses
Mostly clients are involved in small businesses like stitching, spare parts of
automobiles, beauty parlors, bakery, video shop, clothing, frozen foods, fruit and
vegetable shop etc. There is a need to assist the clients in selecting appropriate
business, guiding them about the availability of raw material/services needed to
startup and how to go about it.
Training and development
Microfinance banks do not have separate department which can guide the clients for
establishment of possible businesses at small scale. Given the fact that clients are
given a very small amount of loan it is recommended that they should be given proper
128
direction how to use this money. Exclusive business development centre can be set up
in microfinance institutions to help out clients for this purpose.
Monitoring and follow up of loans
Although MFIs have proper system to ensure repayments but they are lacking in
monitoring the loan usage activities. Since the loan usage was not actually transferred
to investment, it is imperative that there should be periodic monitoring of loans usage.
For example if loan is provided for one year at least quarterly monitoring should be
done to see what are the problems being faced by the clients while progressing with
their new businesses.
Most of the clients have used the loan in consumables.
Majority of the clients are illiterate and need to be guided throughout their loan cycle
about the enhancing sales and decisions pertaining to reinvestment.
Web of services
Focus of microfinance banks should be on provision of web of support services in
addition to microcredit. For example, provisions of microcredit along with the
direction of choice of appropriate business coupled with training and periodic
monitoring of usage of loan can produce positive results. This is the only way to
eradicate poverty.
Introduction of new programs
Since the present study has found a positive relationship between program
participation and children education. New program like education insurance can be
introduced. This program will call for adding a small amount of premium in their
installments (established clients) hence facilitating them in getting higher levels of
education.
129
Enterprise Management Training

Clients are unable to segregate enterprise money from personal use and do not know
how to calculate profits. A training program can be introduced about the calculation
of profits and reinvestment plus guidance about percentage of reinvestment and
profits should be given.
7.6. Future Research
Future research needs to determine the extent to which the findings of the present
study can be extended to include other persons, settings, and time, (Cook & Campbell
1979). One way could be to extend this research in to cross cultural settings. The
results might be different because of having difference in the macroeconomic
environment and peoples entrepreneurship spirit.
Present study has taken microfinance participation, on the basis of time period spent
in the program. Future researches can be extended to take number of loan cycles and
amount of microcredit as a variable for microfinance participation.
Coleman (2001) has a useful non-technical explanation of the difficulties of applying
this approach and eliminating selection and placement bias in micro credit studies.
The present study is not an exception to it. Few steps have been taken as
recommended by Nelson (2000) but still more research is needed in this area.
Further research can be done on improvement and refinement scale used in this study.
Present study has used non parametric test (chi square) to differentiate between the
new and established client (which has certain limitations) and also multinomial
logistic regression. Future researches can be extended to use econometrics for
analytical purpose for in-depth analysis.
130
Role of moderating variables between microfinance and its impact on household and
enterprise level can also be one of the very interesting areas to explore.
Self-selection and placement biases can further be controlled and studied in future
researches so that unbiased findings form a base for more sustainable microfinance
industry.
Longitudinal researches have been a tradition in the field of microfinance sector.
Same study can be replicated by taking this as a base line after 5 years to compare the
impact.
Few more areas, difference among MFIS, (such as banks, NGOs etc) rural vs. urban
contrast can be extensively studied for impact of microfinance at household and
enterprise levels.
131
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APPENDIX I
Interviewee Data Form
Name of the place:_______________
Area
Type of roofing material is used in the main
Structural condition of the
house. (Observe)
house (Observe)
Category of client
Sex
Urban
Thatched roof (branches, twigs, etc)
Seriously dilapidated
One year client
Male
Rural
Tarpuaulin, plastic sheets
Needs major repair
2-4 client
Female
Wooden roof
Needs minor repair
5 & above
Concrete
Sound structure
Clay tiles
Other (specify) ___________________
Age
Marital status
Educational
No of Households
achievement/level
Major source of
family income?
No of salaried
Children (5 17
persons
years)
18-25
Single
Primary
1-4
Wage
None
Yes
26-35
Married
Secondary
5-8
Pension
No
36-45
Separated/divorced
Matriculation
9 & above
Social assistance
2 or more
46-55
Widowed
FA
Income from business
Diploma/technical
Income from
agriculture
56 & above
education
Any other
Income from rent
(specify)_______
Other (specify)
How many children (5-
For the current school year, how much did your
Last highest educational achievement
17) go to school?
household spend on school fees and other education
among children
Ownership status of the house
expenses for school going children?
1-3
RS 1000-10,000
Primary
Built on squatter land
4-6
RS 11000-20,000
Secondary
Owned
6 & above
RS 21,000-30,000
Matriculation
Given by relative or other to use
FA
Provided by government
Diploma/technical education
Rented
Any other (specify)_______
Other (specify) ______________
None
Ownership of assets (All land,
Different household items in use, (if yes
rural, urban, agriculture etc)
put and No then
Yes
Livestock, (buffaloes, cows, sheep, goats,
Type of cooking fuel primarily used
Main source of drinking water
Dung
Piped water
Refrigerator
Collected wood
Ground water
CD player
Purchased wood or sawdust
Well water
Cycle
Kerosene
Surface/pond water
Motor cycle
Gas
Rainwater
Colored TV
Electricity
hens, horses, donkeys)

No
Tractor, trolley, cart

Washing Machine
Sewing Machine
Bed with Foam
Cell-Phone
Other (specify)____________
Others
Usage of Loan
Yes
No
Have no idea
Have you made any improvement/repair in the structure of house from the profits of enterprise?
An income-generating activity?
Yes
Buy food for your household?
No
Buy clothes or other household items?
Do not remember exactly
Give or loan the money to your spouse
In the last week, was any income that you earned in your business used to purchase food?
Give or loan the money to some one
Yes
(relative)
Keep money on hand in case of an
No
emergency
To repay microfinance loan
To repay other debt

For house/land improvement or purchase?
From profits of your enterprise, have you improved sanitation system?(for example, electric motor,
shower, latrine etc)
To spend on a celebration or death etc
Yes
No
Change in the household's diet compared to last year

Improved greatly
Improved slightly
Remained constant
Slightly bad
Worsened
Yesterday, did you or anyone in your household consume
Yes
No
cereals
vegetables
milk/milk products
eggs
Meat (chicken, fish, mutton, beef)
sugar/honey
fruits
During the last 12 months, was there ever a time when it
What did your household do to get through this difficult situation?
was necessary for your household to eat less?

Yes
Borrowed money from family/friends
No
Borrowed food from family/friends
Dont remember exactly
Sold personal property
Left area to seek employment
Family member left and seek employment
Got local employment
Family member got local employment
Have no idea
Other (specify)_____________________________
During the last 12 months, did you make any of the following changes to your enterprise activity?
Expanded size of enterprise/business facility

Added new products
Hired more workers
Improved quality of product
Improved desirability of products
Reduced costs by purchasing in bulk
Yes
No
Have no idea
In managing your enterprise activity

Do you keep your enterprise money separate from the money you have for personal and household expenses?
Do you calculate your profit based on records of your costs and earnings?
Do you know which product(s) bring you the most profit?
Do you get a wage for your own work in the enterprise?
Do you have a fixed location with protection from the sun and rain for selling your products, such as a store, stall etc?
Do you have a fixed location for production other than your residence?
Do you have a fixed location for storing other than your residence?
Have you made a major investment in your enterprise? (shop stall etc)
Have you made a minor investment in your enterprise?(chair, table, etc)
During the last 12 months, was there ever a time
If yes, how long
Did you face any difficulty
If yes, what caused your repayment problems?
when you did not have enough money to conduct
did this period
repaying your loan to the
your enterprise?
last?
program in the last loan cycle?
Yes
1-3 months
Yes
Loan activity was not profitable
No
4-7 months
No
You were sick
Have no idea
Have no idea
Have no idea
Your family member had been sick
Lack of sales
Are you going to take the credit again?
Yes
Death in family
No
Family celebration (wedding, birth, etc.)
Have no idea
Disaster (natural, theft, fire, etc.)
Appendix II
Calculation for KR-20 Formula and the Cronbachs Alpha
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Impact of Microfinance On Poverty: Fuiems

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Impact of Microfinance on Poverty

Impact of Microfinance on Poverty

In partial fulfillment of the requirements for the

Degree of Doctor of Philosophy

I start with the name of ALLAH,

Supervision, Evaluation and Defense

Prof. Dr. Amin Sarkar

School of Business Alabama

Prof. Dr. Syed Azizi Wafa

Labuan International Campus

Prof. Dr. Mushtaq A. Sajid

Prof. Dr. Mushtaq A. Sajid

Dr. H Humayun Naeem

Dr. Syed Hassan Raza

Chapter One. INTRODUCTION

Microfinance and Micro credit

Microfinance in Developing Countries

Microfinance and Poverty

Poverty in the Global Perspective

Identification of the Knowledge Gap

Significance of the Study

Statement of the Problem

Expected Contribution of the Study

Chapter Two. REVIEW OF LITERATURE

Types of Impact Assessment

Challenges of Impact Evaluation

Conclusion of Impact Assessment Studies

Social Impact of Microfinance

Generic model of Social Impact Assessment

Chapter Three. CONCEPTUAL FRAME WORK

Formulation of Hypotheses and Operationalization of Variables

Demographic Characteristics of the Clients

Proposed Research Model

Chapter Four. METHODOLOGY

Small Enterprise Education and Promotion (network) SEEP

Client Assessment Continuum

Longitudinal vs. Cross-sectional Design in Impact Assessment

Instrumentation: Development of Interviewee Data Form

Selection of Microfinance Providers

Chapter Five. DATA ANAYSIS

Response Rate and Non-Response Bias

Overall Sample Demographic Profile

Descriptive Analysis of Responses

Chi Square Test

Basic Computational Equation

Econometric Evidence: Logistic Regression

Chapter Six. INTERPRETATION

Chapter Seven. CONCLUSION and RECOMMENDATIONS

encouragement, invaluable insight, and unconditional support with material and

Assessing the Impact of Microenterprise Services (project)

Bangladesh Rural Advancement Committee

Bank Raykat Indonesias Unit Desa in Indonesia

Consultative Group to Assist the Poor

The First Microfinance Bank Ltd.

Household Economic Portfolio Model

Imp-Act Improving the Impact of Microfinance on Poverty: Action Research Programme

Millennium Development Goals

Medium Term Development Framework

National Rural support Programmme

POMFB Pak-Oman Microfinance Bank Ltd.

Poverty Reduction Strategy Paper

Rural Support Programme

Small Enterprise Education and Promotion (network)