Evaluating microfinance program innovation with randomized controlled trials: Examples from business training and group versus individual liability

Abstract

In the past decade, microfinance institutions (MFIs) have experienced a boom in innovations of lending products, partly fueled by donors who see microfinance as the next promise to alleviate poverty. Examples of these new products are the combination of credit with health or life insurance, business and health education, savings products, and the adoption of (or conversion to) individual loan liability. The add-on features generally aim at reducing the vulnerability of clients while contributing to asset creation, hence improving repayment rates and the sustainability of the service. The product innovations typically result from organizations striving to extend outreach, increase impact, and promote sustainability. As in other industries, MFIs typically decide whether to adopt new strategies based on other MFIs’ success with the innovations. Many new microlending products and approaches continue to be developed. However, MFIs must generally rely on qualitative and descriptive case studies and anecdotal evidence on the effectiveness of these innovations to decide whether to implement the new strategies. The usual case study approach does not provide tangible evidence that can enable other organizations to know what changes can be expected if they were to adopt similar product changes.

Citation

Karlan, D., Harigaya, T. and Nadel, S. (2009), "Evaluating microfinance program innovation with randomized controlled trials: Examples from business training and group versus individual liability", Watkins, T.A. and Hicks, K. (Ed.) Moving Beyond Storytelling: Emerging Research in Microfinance (Contemporary Studies in Economic and Financial Analysis, Vol. 92), Emerald Group Publishing Limited, Leeds, pp. 215-249. https://doi.org/10.1108/S1569-3759(2009)0000092010