Files
Abstract
This paper evaluates the long-term impact of microfinance credit from the intensity of
participation in borrowing. We use a four-round panel data set on 351 farm households that had
access to microfinance in northern Ethiopia. Over the years 1997-2006, with three-year intervals,
households are observed on key poverty indicators: improvements in annual consumption and
housing improvements. The relatively long duration in the panel enables to measure household
poverty changes between consecutive periods and see the long-run effects of exposure to
microfinance from the intensity of participation borrowing. The fixed-effects model is
innovatively modeled to account for potential selection biases due to both time-invariant and
time-varying unobserved individual household heterogeneities. Results show that microfinance
borrowing indeed causally increased consumption and housing improvements. A more flexible
specification that allows for the number of times the household has been in borrowing also shows
that repeated borrowing is effectively increasing consumption: the longer the borrowing
relationship the larger the effect partly due to lasting credit effects. Impact estimates that do not
account for such dynamic effects may therefore undermine the effect of MFI borrowing.