Does Microfinance Reduce Rural Poverty? Evidence Based on Household Panel Data from Northern Ethiopia

Guush Berhane and Cornelis Gardebroek

American Journal of Agricultural Economics, 2010, vol. 93, issue 1, 43-55

Abstract: Evidence on the long-term impacts of microfinance credit is scarce. We use a unique four-round panel dataset on farm households in northern Ethiopia that had access to microfinance, observed on two key poverty indicators: household consumption and housing improvements. Fixed-effects and random trend models are used to reduce potential selection biases due to time-invariant unobserved heterogeneity and individual trends therein. Results show that borrowing indeed causally increased consumption and housing improvements. A flexible specification that takes into account repeated borrowings also suggests that borrowing has cumulative long-term effects on these outcomes, implying that short-term impact estimates may underestimate credit effects. Copyright 2010, Oxford University Press.

Date: 2010
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Working Paper: Does microfinance reduce rural poverty? Evidence based on household panel data from northern Ethiopia (2009)
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