Comparative Analysis on the Economic Impacts of Client's and Member based Microfinance Institutions in Ethiopia

Abstract

Several evidences in the developing world argued that access to finance can help to substantially reduce poverty. Contrarily, proponents criticized that MC does not reach the poorest of the poor or that the poorest are deliberately excluded from the MC programs. Despite the apparent success and popularity of microfinance, no clear evidence yet exists that microfinance programs have positive impacts on the life of the poor. The main aim of this study is therefore, to assess the relative economic contributions made through the CBMFIs and SACCOs. The study applied DID approaches comprising of the FE and RE models and the t test statistics taken part from analysis of varying cross- sectional and panel data collected through Questionnaires and structured interview. To fulfill the stated research objectives, the researcher considered the income levels of individuals, of households and of businesses, as well as savings levels, expenditure, and asset accumulation as outcome indicators. MC services were found to have positive and significant impact on the living standard of the poor and alleviating poverty in their household. Apparently, the SD estimates indicate that both MC modalities have brought substantial impact on the average monthly households income and expenditure, savings and assets level, business profits and working capital. Accordingly, each birr MC grant could generate 92.24 and 54.17 birr extra household assets for the client and member beneficiaries respectively. The log specifications reveal 3.3 and 1.3 percent growth respectively. The household monthly income and expenditure grows on average by 116 and 70 birr respectively. The result was slightly lower for the SACCO members. For instance, the average monthly household assets, income and expenditure growth contributed by the CBMFI reveal 40 birr, 120 birr and 48 birr higher than the SACCOs contributions respectively. In general, the DID estimates reveal a general tendency for higher economic contributions made through the CBMFIs. They have shown better outreach performance and were able to realize far-reaching benefits for its clients.