Measuring Microfinance's Effectiveness

A major issue for microcredit, one of the main efforts to fill the holes in market economics, is the lack of a consistent way to measure its impact. For instance, how many of the people who get microcredit are lifted out of poverty, for instance. Does it work as well for the extremely poor as for those above the poverty line?

Nobody's really sure. "We deal more in anecdotes than data," says Alex Counts, president of the Grameen Foundation, a sister organization to Grameen Bank, which pioneered microcredit.

To fix the problem, the Grameen Foundation has created the Progress out of Poverty Index, 10 questions designed to help microfinance institutions quickly gauge the poverty level of people they lend to, and to track whether that changes. The questions apply across cultures and geographies, creating a potential international benchmark for measuring microcredit organizations. Does it work?
Initial results show promise.

The tool has been applied in 15 countries. Two of them are the Philippines and Peru, where Oikocredit, a Dutch cooperative that backs a number of microcredit institutions, has used the PPI since 2007. The tool has given Oikocredit a level way to look at the institutions it funds -- "it enables us to profile the clients reached by one MFI against another," says Ging Ledesma, who is the manager of monitoring and administration unit of Oikocredit's department of credit operations.

It's also helped Oikocredit to suggest shifts in the operations of at least one of the microfinance groups it funds. her organization intends to expand its use of the PPI, which is in use in 15 countries now.

The PPI isn't perfect â€" Ledesma notes that it's a challenge for microfinance institutions to process their data. But it is a step towards assessing what social capital really accomplishes, and could apply outside of microfinance.