ASSESSING THE COMMUNITY ECONOMIC IMPACT OF MICROFINANCE INSTITUTIONS Gary Woller and Robert Parsons Romney Institute of Public Management Marriott School Brigham Young University Send all correspondence to Gary Woller, Romney Institute of Public Management, Marriott School, Brigham Young University, Provo, Utah 84602, (801) 378-1770 (p), (801) 378-8975 (f), gwoller@byu.edu
2 ASSESSING THE COMMUNITY ECONOMIC IMPACT OF MICROFINANCE INSTITUTIONS ABSTRACT Microfinance institutions (MFIs) ultimately measure their success by the impact they have on their clients, on clients’ families, and on the communities in which they live. One potentially important piece to the MFI impact puzzle that has yet to be addressed in the microfinance literature is the so-called community economic impact, defined here as the direct and induced impact of the MFI on local economic activity. Integral to estimating a community economic impact is calculating the relevant regional income multiplier. This article demonstrates how a community economic impact and regional income multiplier might be estimated using the minimum employment requirements approach with the village health bank program of Project Hope in Portoviejo, Ecuador. It is hoped that this article will encourage and help other researchers incorporate community economic impact into future impact assessments of microfinance programs. Key Words: Microfinance Microenterprise Microcredit Impact Assessment Economic Impact
3 . INTRODUCTION Despite a multitude of studies devoted to the topic, the impact of microfinance programs on the poor in developing countries remains an intensely debated issue. Taken as a whole, the evidence is mixed: some studies find positive impacts, other studies find no or negative impacts, while other studies find positive impacts in some areas and no impact in other areas. (See Sebstad and Chen, 1996 and Chua et al., 2000 for good summaries of existing impact studies.) Nonetheless, the preponderance of... [continues]
2 ASSESSING THE COMMUNITY ECONOMIC IMPACT OF MICROFINANCE INSTITUTIONS ABSTRACT Microfinance institutions (MFIs) ultimately measure their success by the impact they have on their clients, on clients’ families, and on the communities in which they live. One potentially important piece to the MFI impact puzzle that has yet to be addressed in the microfinance literature is the so-called community economic impact, defined here as the direct and induced impact of the MFI on local economic activity. Integral to estimating a community economic impact is calculating the relevant regional income multiplier. This article demonstrates how a community economic impact and regional income multiplier might be estimated using the minimum employment requirements approach with the village health bank program of Project Hope in Portoviejo, Ecuador. It is hoped that this article will encourage and help other researchers incorporate community economic impact into future impact assessments of microfinance programs. Key Words: Microfinance Microenterprise Microcredit Impact Assessment Economic Impact
3 . INTRODUCTION Despite a multitude of studies devoted to the topic, the impact of microfinance programs on the poor in developing countries remains an intensely debated issue. Taken as a whole, the evidence is mixed: some studies find positive impacts, other studies find no or negative impacts, while other studies find positive impacts in some areas and no impact in other areas. (See Sebstad and Chen, 1996 and Chua et al., 2000 for good summaries of existing impact studies.) Nonetheless, the preponderance of... [continues]
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