Impact assessments in finance and private sector development: what have we learned and what should we learn? World Bank Research Observer 25(2

Until recently rigorous impact evaluations have been rare in the area of finance and private sector development. One reason for this is the perception that many policies and projects in this area lend themselves less to formal evaluations. However, a vanguard of new impact evaluations on areas as diverse as fostering microenterprise growth, micro-finance, rainfall insurance, and regulatory reform demonstrates that in many circum-stances serious evaluation is possible. The purpose of this paper is to synthesize and distill the policy and implementation lessons emerging from these studies, use them to demonstrate the feasibility of impact evaluations in a broader array of topics, and thereby help prompt new impact evaluations for projects going forward. JEL codes: O16, O17, C93 The recent external review of World Bank research noted that “perhaps the most important role of Bank research is to learn what works, and to widely disseminate the results ” (Banerjee and others 2006, p. 148). Rigorous impact evaluations, which compare the outcomes of a program or policy against an explicit counter-factual of what would have happened without the program or policy are one of the most important tools that can be used, along with appropriate economic theory, for understanding “what works. ” Despite this, until recently impact evalu-ations have been rare, especially outside the areas of health and education.1 This is now particularly apparent in the area of finance and private sector develop-ment, where the recent financial crisis has prompted renewed attention to knowing what works in terms of getting finance to consumers and firms, and in getting the private sector growing again.