Tuesday, 22 February 2022 13:24

You don't know what you've got until it's gone: impact evaluation of the closure of the non-bank microfinance sector

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Microfinance became a buzz term in the world of development economics and a promising tool for poverty alleviation. Most impact evaluations of microfinance programs focus on measuring the impact of introducing new microfinance programs. Empirical evidence on measuring what might occur if microfinance institutions (MFIs) exit an economy, is rather scarce. From 2008 to 2011, seven microfinance crises hit national economies in Nicaragua (2008 farmers’ protest), Bosnia and Herzegovina (2009 over-indebtedness), India, Kolar (2009 religious issues), India, Andhra Pradesh (2010 suicides), Pakistan (2010 floods), and Nigeria (2010 liquidity crisis). In this project, we provide a novel contribution to the literature by characterizing the effect of the 2011 closure of the entire non-bank MFI sector in Uzbekistan. We use mixed methods to measure the impact of the closure, combining qualitative and quantitative research methods. For the quantitative part, we employ a modified difference-in-difference model to estimate the impact of the closure on the socio-economic and business outcomes of the borrowers. Overall results indicate that microfinance programs influence societies and regional economies as they are deeply rooted in the life of borrowers and also influence non-borrowers. Shocks on the supply side of microfinance provision could shatter the well-being of middle-income entrepreneurs who boost local economies the most. More importantly, dramatic shocks on the market also lead to changes in institutional and behavioral aspects, such as trust in MFIs and financial literacy, which may be difficult to restore.

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