Impact of Microcredit Program on Non-income Outcomes – A Case of Akhuwat Microfinance Organization in Pakistan

Abstract

The lack of access to credit largely impedes economic prosperity and thus causing people to remain trapped in poverty for sustained period of times. In this regard, microcredit has played a crucial role in improving the lives of poor individuals. A cursory look at the reports of its practical benefits in many developing countries over the past few years, reveals the powerful potential of microcredit in fostering business venture and promoting income generation. While existing literature on the subject reviews the impact of microcredit interventions on widely known outcomes such as household’s income, assets, health, education and living standard, it seems to undermine the focus on considering the other dimensions of human development. The key objective of human development is to enable people to flourish in various ways and it encompasses wide range of domains. In the field of poverty, Oxford Poverty and Human Development Initiative (OPHI) has identified ‘Missing Dimensions’ of poverty which deprived people regard as important in their experiences of poverty and there is limited or no data available on these domains. The aim of the present study is to draw attention to ‘missing dimensions’ of poverty (subjective and psychological wellbeing and social connectedness) in the context of impact of microcredit program evaluation. This study will enable to efficaciously address the gap in literature by analyzing the effect of a microcredit program on the diverse set of outcomes which are largely unexplored. Therefore, it will enable to assess the potential of microcredit program in a wide array of outcomes. In the present study, the quasi-experimental design has been used to evaluate the impact of the microcredit program on subjective and psychological wellbeing and prosocial behavior in the borrowers. It formed a treatment group and a control group amongst the respondents. The survey was carried in 2018 to collect the data from the borrowers of Akhuwat microfinance organization (the largest microfinance provider in terms of active borrowers in Pakistan in 2017 and 2018). The sample size of the survey is 260 borrowers in which 130 borrowers are initial clients (i.e. borrowers were affiliated with microcredit program for a year or less than a year) and 130 borrowers are mature clients (i.e. borrowers who were affiliated with microcredit program for a minimum duration of 3 years). The treatment group comprises the mature clients and the control group comprises the initial clients. The descriptive analysis and regression analysis is used to interpret the data. For regression analysis, the binary logistic regression model is used to infer the relationship between the dependent and predictor variables. The empirical evidence reveals that microcredit intervention has a positive and significant impact on several of the non-income outcomes in the study. In the dimension of subjective and psychological wellbeing, the role of client type is significant and positive in the internal work competence indicator. This suggests that mature clients experience a higher sense of achievement from their business activity as compared to the initial clients. In the dimension of pro-social behavior and perception, the evidence shows that the role of client type is significant in the aspects of financial help to relatives, financial help to neighbors and importance of girls’ education. This reveals that mature clients tend to engage more in provision of pro-social acts and seems to give more importance to attainment of girls’ education as compared to the initial clients. Further, the respondent’s income has positive relationship and significant impact on several variables which include income satisfaction, food satisfaction, work satisfaction, external competence, internal competence and in all three indicators of pro-social acts. Moreover, the results show that there is high correlation among the majority of the dependent variables. Hence, the study supports the notion that microcredit can be considered as a positive tool to enhance the wellbeing of poor individuals on wide range of outcomes. Therefore, policy makers should acknowledge the desirable outcomes of microcredit programs and consider enhancing the availability and services of microcredit programs to poor individuals