Evaluation Study Reference Number: SST: REG 2007-19 Special Evaluation Study September 2007 Effect of Microfinance Operations on Poor Rural Households and the Status of Women Operations Evaluation Department CURRENCY EQUIVALENTS (14 August 2007) Currency Unit Per Currency Unit in $ $1.00 pesos (P) 0.0219 45.675 sum (SUM) 0.0008 1,269.080 taka (Tk) 0.0145 68.853 ABBREVIATIONS ADB – Asian Development Bank APIS – Annual Poverty Indicators Survey ASKS – Annanna Samaj Kailan Samity (Unparalleled Social Welfare Association) BBS – Bangladesh Bureau of Statistics DMC – developing member country GDP – gross domestic product HH – household MFI – microfinance institution NGO – non government organization NSO – National Statistics Office OED – Operations Evaluation Department TMSS – Thengamara Mahila Sabuj Sanga (Thengamara Women's Green Organization) SCU – savings and credit union NOTES (i) In this report, "$" refers to US dollars. Key Words adb, asian development bank, microfinance, microcredit, microenterprise, gender, rural, women, bangladesh, philippines, uzbekistan, ultra poor, microfinance institutions, rigorous impact assessment, impact evaluation, enterprising poor Director General B. Murray, Operations Evaluation Department (OED) Director R. K. Leonard, Operations Evaluation Division 1, OED Team leader T. Kondo, Senior Evaluation Specialist, Operations Evaluation Division 1, OED Team members C. Infantado, Portfolio Evaluation Officer, Operations Evaluation Division 1, OED A. Alba, Operations Evaluation Assistant, Operations Evaluation Division 1, OED Operations Evaluation Department, SS-82 CONTENTS Page EXECUTIVE SUMMARY iii I. INTRODUCTION 1 II. OBJECTIVES AND SCOPE 1 A. Objectives 1 B. Scope 1 III. DESCRIPTION OF SELECTED PROJECTS 2 A. Philippines 2 B. Bangladesh 3 C. Uzbekistan 4 IV. LITERATURE REVIEW OF STUDIES ASSESSING THE IMPACT OF MICROFINANCE 5 V. FRAMEWORK FOR ASSESSING IMPACT ON HOUSEHOLDS 7 VI. METHODOLOGY 8 A. Quantitative Tools 8 B. Qualitative Tools 10 VII. FINDINGS OF THE STUDY 10 A. Outreach of Microfinance Projects 10 B. Impact of Microfinance 17 C. Effects on the Status of Women 25 D. Project Design and Implementation 30 VIII. LESSONS AND RECOMMENDATIONS 34 A. Lessons 34 B. Recommendations 35 The guidelines formally adopted by the Operations Evaluation Department (OED) on avoiding conflict of interest in its independent evaluations were observed in the preparation of this report. C. Dingcong, A. Orbeta, Jr., and E. Capones were the consultants. F. Gerardo assisted in the surveys. N. Biggar and D. Levine were the external reviewers of the report. To the knowledge of the management of OED, there were no conflicts of interest of the persons preparing, reviewing, or approving this report. APPENDIXES 1. ADB Microfinance Portfolio 37 2. Review of Literature 42 3. ADB’s Microfinance Operations and the Objectives of the Special Evaluation Study 47 4. Framework for Assessing the Impact on Households 48 5. List of References 51 6. Sampling Scheme for the Philippine Rural Microenterprise Finance Project Impact 53 Survey 7. Sampling Design and Procedure 54 8. Estimation Procedure for Determining Impact of Microfinance 56 9. Coverage of Sample Household Surveys in Bangladesh and Uzbekistan 59 10. Qualitative Tools Used 60 11. Descriptive Statistics and Significance Level Between Households 61 12. Outreach of Selected ADB Microfinance Projects 65 13. Impact Estimation Results 66 14. Impact Estimates on Selected Outcome Variables 78 15. Conceptual Framework on the Effects of Microfinance on the Status of Women 80 16. Percentage Distribution of Survey Responses on Women’s Status 82 17. Development Objectives and Target Groups of Selected ADB Microfinance Projects 88 18. Guidelines for Determining the Extent ADB Projects have Mainstreamed Gender 89 and Development in Project Design and Implementation 19. Comparative Loan Sizes 91 20. Selected ADB Projects and Participating Microfinance Institutions 92 21. Lessons Learned in Implementing the Impact Survey 93 SUPPLEMENTARY APPENDIXES (available upon request) 1. Statistical Compendium of Impact Survey Results 2. Technical Report on the Estimation of Impact of the Rural Microenterprise Finance Project EXECUTIVE SUMMARY The main objective of this special evaluation study was to assess the extent to which selected Asian Development Bank (ADB) microfinance projects have reduced the poverty of rural poor households and improved the socioeconomic status of women in developing member countries. Bangladesh, Philippines, and Uzbekistan were selected for the study, representing three of the five operational regions of ADB. The projects selected for in-depth review were: (i) the Rural Microenterprise Finance Project in the Philippines; (ii) Participatory Livestock Development Project in Bangladesh; (iii) Second Participatory Livestock Development Project in Bangladesh; (iv) Rural Livelihood Project in Bangladesh; and (v) the Small and Microfinance Development Project in Uzbekistan. The study used quantitative tools to measure the impact of microfinance on rural households for the Rural Microenterprise Finance Project in the Philippines. A carefully designed nationwide survey was conducted covering 2,274 households in 116 barangays (villages) and 28 microfinance institutions. Smaller sample surveys—intended to generate the socioeconomic profile of target groups reached by ADB microfinance projects rather than measure impact quantitatively—were undertaken in Bangladesh and Uzbekistan. Qualitative tools to gather information on intra-household dynamics were used to assess the effects of microfinance on the status of women. A total of 27 focus group discussions were undertaken in three countries. Over 200 female microfinance clients participated in these discussions. Sample surveys covered 566 women microfinance clients in the Philippines and 200 in Bangladesh. These surveys were designed to complement and validate the focus group discussions. The impact study in the Philippines used a quasi-experimental design that required treatment and comparison areas for each of the 28 microfinance institutions. These areas were geographically different from each other. Two types of household respondents were covered by the surveys: (i) households that received microcredit loans, and (ii) households that did not receive microcredit loans but qualified to join the program. Econometric estimation techniques were used to estimate the impact of microfinance on the beneficiaries. Controls were applied to address biases known to be associated with microfinance impact assessments. The average loan size was about P5,500. The results of the econometric estimates show that the availability of microcredit loans had positive and mildly significant impacts (significance level of 10%) on the per capita income of the beneficiaries. The income of those that received microcredit loans increased by P5,222 per year compared with those that did not receive a loan. In terms of aggregate impact, this translates to P8.6 billion for the total of 1.6 million women clients reached with microcredit. Consistent mildly positive impacts were also found for per capita total expenditures and per capita food expenditures. However, the impact on per capita income and expenditures was found to be regressive (i.e., the impact was negative on households with per capita incomes of less than P34,428, and become positive only for households with per capita incomes above P56,200). This result is similar to other studies on the provision of microcredit in Bangladesh, India, Indonesia, Sri Lanka, and northeastern Thailand. The finding suggests 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. iv The Rural Microenterprise Finance Project helped to reduce the dependence of participating households on other loans such as informal moneylenders and more expensive loans from financial institutions. In addition, the proportion of participating households with savings accounts increased, as did the amounts in these savings accounts. All these improved the consumption smoothing capabilities of participating households. The Philippine microcredit program had a significant impact on the number of microenterprises and the number of persons employed in them, reflecting that the program was designed to cater to the entrepreneurial poor. In terms of outreach, the Rural Microenterprise Finance Project was able to reach poor households, but not in significant numbers. Based on the Philippine official poverty line, the household survey found that only 10% of the respondents were classified as poor and 4% as subsistence poor. This is an important finding since the project was originally designed to reach the ultra poor. There is a need to reexamine (i) the targeting approach and mechanisms used by the microfinance institutions, and (ii) whether microfinance institutions have incentives to reach poor households given their concerns about loan repayment and their financial sustainability. In Bangladesh, the households participating in the Second Participatory Livestock Development Project (average monthly income of Tk3,762) tend to be poorer than those in the Rural Livelihood Project (average monthly income of Tk5,430). The Rural Livelihood Project beneficiaries tended to be better off than the poor. In Uzbekistan, the clients of the Savings and Credit