Does microfinance reduce rural poverty? Evidence based on household panel data from Tigray, northern Ethiopia

G. Berhane Tesfay, C. Gardebroek

Research output: Contribution to conferenceConference paperAcademicpeer-review

Abstract

This paper evaluates the long-term impact of microfinance credit from the intensity of participation in borrowing. We use a four-round panel data set on 351 farm households that had access to microfinance in northern Ethiopia. Over the years 1997-2006, with three-year intervals, households are observed on key poverty indicators: improvements in annual consumption and housing improvements. The relatively long duration in the panel enables to measure household poverty changes between consecutive periods and see the long-run effects of exposure to microfinance from the intensity of participation borrowing. The fixed-effects model is innovatively modeled to account for potential selection biases due to both time-invariant and time-varying unobserved individual household heterogeneities. Results show that microfinance borrowing indeed causally increased consumption and housing improvements. A more flexible specification that allows for the number of times the household has been in borrowing also shows that repeated borrowing is effectively increasing consumption: the longer the borrowing relationship the larger the effect partly due to lasting credit effects. Impact estimates that do not account for such dynamic effects may therefore undermine the effect of MFI borrowing.
Original languageEnglish
Pages1-26
Publication statusPublished - 2009
EventThe New Landscape of Global Agriculture; XXVII International Conference of Agricultural Economists (IAAE) -
Duration: 16 Aug 200922 Aug 2009

Conference

ConferenceThe New Landscape of Global Agriculture; XXVII International Conference of Agricultural Economists (IAAE)
Period16/08/0922/08/09

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    Berhane Tesfay, G., & Gardebroek, C. (2009). Does microfinance reduce rural poverty? Evidence based on household panel data from Tigray, northern Ethiopia. 1-26. Paper presented at The New Landscape of Global Agriculture; XXVII International Conference of Agricultural Economists (IAAE), . https://edepot.wur.nl/49875