Smoke and Mirrors: Evidence of Microfinance Impact from an Evaluation of SEWA Bank in India

This publication may be reproduced by any method without fee for teaching or nonprofit purposes, but not for resale. This paper and others in the DEV Working Paper series should be cited with due acknowledgment. About the DEV Working Paper Series The Working Paper Series profiles research and policy work conducted by the School of International Development and International Development UEA (see below). Launched in 2007, it provides an opportunity for staff, associated researchers and fellows to disseminate original research and policy advice on a wide range of subjects. All papers are peer reviewed within the School. About the School of International Development The School of International Development (DEV) applies economic, social and natural science disciplines to the study of international development, with special emphasis on social and environmental change and poverty alleviation. DEV has a strong commitment to an interdisciplinary research and teaching approach to Development Studies and the study of poverty. International Development UEA (formerly Overseas Development Group) Founded in 1967, International Development UEA is a charitable company wholly owned by the University of East Anglia, which handles the consultancy, research, and training undertaken by the faculty members in DEV and approximately 200 external consultants. Since its foundation it has provided training for professionals from more than 70 countries and completed over 1,000 consultancy and research assignments. International Development UEA provides DEV staff with opportunities to participate in ongoing development work, practical and policy related engagement which add a unique and valuable element to the School's teaching programmes. Abstract Microfinance has been on the development agenda for more than 30 years, heralded as the wondrous tool that reduces poverty and empowers women Given this context, this paper reexamines the microfinance impact evaluation of SEWA Bank conducted by the United States Agency for International Development (USAID) in India in 1998 and 2000. The USAID panel and a new cross-section data set are analysed using propensity score matching (PSM) and panel data techniques to address selection bias. Sensitivity analysis of the matching results is used to explore their reliability. Various subgroup comparisons between borrowers, savers and controls are also conducted to shed some light on the impact of savings versus credit. The paper concludes that doubts remain about the quality of the impact estimates obtained through advanced econometric techniques. Direct observation and the outcome of sensitivity analysis of the PSM analysis suggest that the application of PSM and differences-indifferences (DID) …