The Impacts of Microcredit: Evidence from Ethiopia

Assessing the impact of access to microcredit in poor communities

This paper studies the impact of increasing access to microfinance on a number of socio-economic outcomes such as income from agriculture, animal husbandry, non-farm self-employment, labor supply, schooling, and indicators of women’s empowerment. It does so by using a randomized controlled trial (RCT) conducted in 2003-2006 in rural Amhara and Oromiya (Ethiopia). The paper discusses the following in detail:

  • Experimental design, sources of data, and summary statistics for 133 peasant associations from two zones in the Amhara region and two zones in the Oormiya region;
  • Background of the Amhara Credit and Savings Institute (ACSI) and the Credit and Savings and Share Company (OCSSC), two MFIs operating in the concerned region;
  • Estimation of a randomized controlled trial by regressing outcomes of interest on peasant association-specific dummy variables;
  • Discussion of the impact of microcredit as observed from the RCT under 3 headings: impact on borrowing behavior, impact on households’ economic activities including impact on the labor supply, and impact on child schooling and other socio-economic indicators.

The paper reports that despite substantial increases in borrowings in areas where the study was conducted, the hypothesis of no impact of microcredit can be rejected for a large majority of outcomes.

About this Publication

By Tarozzi, A., Desai, J. , Johnson, K.