Impact assessment of microfinance on the welfare of low income households

The declaration of year 2005 as the International Year of Microcredit signified the worldwide recognition of microfinance and now it has changed and revitalized the lives of many communities. United Nations, governments and other institutions thereby called on the nations to build sustainable and inclusive financial sectors in order to empower the poor. Presently, microfinancing is increasingly recognized in the Philippines and many other developing countries as an effective tool for poverty alleviation. As the formal financial sector had failed to respond to the needs of the poor entrepreneurs, a real demand had been created for viable financial vehicles that could reach the poor and low-income clients. To a country where majority of its population is mired in poverty, where the financial sector prejudiced the poor and where microfinance institutions have already started gaining foothold in the financial market, the question Is microfinance really effective in improving the welfare of the poor the low-income households? must be answered. This paper aims to evaluate the effectiveness of microfinance by assessing its impact on the economic welfare of the low-income microfinance clients. This impact assessment study also answers how microfinance was able improve the clients\u27 welfare by enumerating the components of welfare that had been significantly improved. Furthermore, the paper also intended to compare and distinguish the effects of microfinance between the clients who stayed longer in the microfinance program and those clients who are considered less active in microfinancing. Primary data gathering was used to gain relevant data from both the microfinance institution (Tulay sa Pag-unlad Incorporated) and its clients (TSPI Cluster One, Lower Antipolo Area) to provide information regarding the impact of microfinance. Aspects of economic welfare to be assessed in this study include household income, capital and household assets, food and non-food expenditures, education, health and housing, all of which were summed up to come up with an aggregate measure of economic welfare. Changes in welfare and all its components depended on microfinance (number of loan cycles completed, total amount loaned, longer and active participation in the program) and other individual and household demographic characteristics