Before designing a conceptual framework for any particular microfinance impact study, there is a need to first identify a relevant and suitable approach for the intended purpose of the study. Indeed, a study may align to either of two schools of thought concerning microfinance impact assessment. Hulme (2000) identify these schools of thought as the Intermediary school and intended beneficiary school. With its origin traceable to the Ohio State University School analyses of rural finance, Mohamed, & Al-Shaigi, (2017) and Hulme (2000) suggest that the intermediary school focuses on the supply side, which is the beginning of the impact chain. On the other hand, the intended beneficiary school goes further down the impact chain to consider the demand side of the microfinance intervention. The following Sections will examine both schools in detail.
Makina and Malobola (2004) pointed out that the intermediary school seeks to address issues related to the health and spread of microfinance institutions. Thus, this approach assesses both the financial and organizational sustainability of lenders and evaluates the intervention impact in terms of its outreach to the borrowers. Therefore, the main two variables for establishing impact is the sustainability and outreach of microfinance institutions. If both sustainability and outreach are enhanced, then the program is perceived to be beneficial since it has led to financial market expansion (Kessy, 2012). This assumption is based on the premise that an expanded financial market provides multiple financing options for people who want to borrow or save, thus, this widened financial access would lead to improved microenterprises performance and household well-being. While this assumption may be theoretically supported, the empirical application is complex and contested. The main reason being the tradeoff between achieving sustainability and outreach. Armendariz and Szafarz (2011) and Beisland et al., (2017) referred to this trade-off as the “mission drift”, implying the compromising situation faced by microfinance in the quest of achieving sustainability, which often leads to a negative outcome for participants. The literature documents this debate between the advocates of the welfarist approach and campaigners for the institution's approach.
Although few studies have rigorously tested the tradeoff issue (Hermes, et al., 2008), most of the studies confirm the existence of this tradeoff between sustainability and outreach (Nurmakhanova et al., 2015; Wry et al., 2018;Abdulai, & Tewari, 2017). More damning is the findings of Cull et al., (2007) which suggest that microfinance institutions who pursue the
74 | P a g e sustainability objective are more drawn to carter only for wealthy clients, thus, excluding poor applicants who are desperately in need of financial resources. This suggests that MFI sustainability and outreach are two parallels that are difficult to merge. This brings to light the complexities that may be faced by studies seeking to apply the proposed approach of the intermediary school in IA. The underlying assumption of the intermediary school is likely to be flawed by these complexities and more importantly, the fact that it does not provide details of the service user’s experiences. In line with this view, Wiig (1997) contends that intermediary school approach does do disclose participants cross-financing which may adversely impact on the sustainability of the MFIs. Although Kessy (2012) agrees with the assumption that observes intervention is positive when MFI are financially sustainable and have widened outreach, the issue of attributing causality based on limited knowledge of the borrowers and they change that have taken place further weakens the validity of such IA studies. At best the intermediary school may be successful at measuring institutional indicators like a number of borrowers reached, repayment rates and amount of credit provided, it is unable to assess the improvements in the living conditions of borrowers (Chowdhury & Mukhopadhaya, 2012).
On the other hand, the intended beneficiary school focuses on the participants of interventions and how they are affected by the intervention. This school argues that the impact of funded interventions needs to be assessed and causality attributed directly to participants to justify the effect of interventions (Makina & Malobola, 2004). One way to establish this has been to evaluate changes in the economic and social status of microfinance borrowers attributable to their participation in the intervention (Hossain, 2012). Variables like income, employment and assets are commonly used to evaluate the economic profile of participants while education, health, nutrition, women’s empowerment etc are key variables for assessing the social impact of microfinance interventions (Ghalib, et al., 2015; Samer, et al., 2015; Awan & Joiya, 2015). According to Kessy (2012), a positive impact will be claimed if the intervention demonstrates that the lives of participants have changed positively. Thus, the IA philosophy of the intended beneficiary school stresses that intervention impact is observed when there are changes in the behaviour and practices of service users that lead to the achievement of the desired outcome. For instance, MFIs with the objective of women’s enterprise development may attribute impact when there is evidence of changes in the business growth of its service user’s enterprises caused by their participation in the program.
75 | P a g e Hulme (2000) contends that an important feature of the intended beneficiary approach is its ability to distinguish between “who benefits and how” and thus enable the assessor to gain insight of the impact of the intervention on borrowers. The intended beneficiary approach perceives microfinance services as those that can improve the livelihoods of the poor through a combination of increased income and social capital, reduce vulnerability and debt relations (Kessy, 2012). It evaluates the extent to which service users have benefited from interventions by considering observed changes in their lives, enterprise growth/expansion and overall change in their economic and social condition (see Figure 3.1 for details). Therefore, by assessing participants, IA studies can provide useful information about their profiles, challenges, perspective and also the services and products that provided the highest outcome. Such information does not only help in establishing causality but also serves as useful feedback to MFIs for service improvements. However, a major limitation of this school is that it is methodologically demanding and expensive to conduct an IA (Hulme, 2000). The cumbersomeness of this approach arises because the social benefits of MFIs include the benefits gained by clients and those of the entire society (Mustafa & Saat, 2012). In line with this view, Garikipati, (2017) and Shcreiner (2002) argued that one of the complications in assessing social impacts stems from the difficulty in measuring borrower’s expectations and the challenge of knowing what would have happened in the absence of intervention. In addition, the intended beneficiary school is criticized for focusing on the impacts of formal institutions on client’s wellbeing without considering whether existing informal financial markets are not undermined especially in view of the evidence of exploitative tendencies of some MFIs (Makina & Malobola, 2004).
Having analyzed the strengths, weaknesses and usefulness of each of the two schools above, Kessy (2012) stressed that the choice of an approach is dependent on its alignment to the objectives of the study in which it will be considered. Considering that the current study seeks to examine the impact of microfinance on women entrepreneurial development and empowerment in Nigeria from the perspectives of service users, the intended beneficiary approach is considered appropriate for this study. This is because the approach will be useful in providing insight into borrower’s behaviour, practice and perspective, which will assist the author in establishing how microfinance directly affects participants. In addition, this approach will help the author examine the contextual issues related to providing microfinance services in Nigeria. Understanding the contextual environment in which MF interventions are implemented is vital to understanding the effect of the intervention on women (Howard et al.,
76 | P a g e 2017; Stewart, et al., 2010). Figure 3.1 below demonstrates the emphasis of each of both IA approaches discussed above.
Figure 3. 1 Differing Views of Microfinance Impact Assessment
3.2 Conceptualization of Microfinance Impact on Women Entrepreneurial