Putting Microfinance to the Test
18-Month Impacts of the Grameen America Program
This report summarizes 18-month findings from the evaluation of the Grameen America program, a microfinance institution that provides loans to low-income women in the United States who are seeking to start or expand a small business. The program is based on the Grameen Bank model developed in Bangladesh during the late 1970s. Its objective is to reduce poverty through the provision of loans, financial training, and peer support.
The Grameen America evaluation is using a randomized controlled trial design to explore the mechanisms of program operations and whether the model leads to improved outcomes for borrowers. The evaluation includes an implementation analysis, which examines how the program operates and the experiences of borrowers and program staff; and an impact analysis, which assesses the program’s effects on participants’ outcomes, including the study’s two primary outcomes: individual net income and types of material hardship experienced. Other outcomes include wage- and self-employment, earnings and other income, assets, and financial well-being. The implementation analysis includes outcomes from program-tracking data as well as findings from interviews with borrowers, focus groups, observations of the program, and interviews with Grameen America staff. The impact findings in this report are based on sample members’ responses to an 18-month survey and credit report data from a major credit reporting agency. The Grameen America evaluation is funded by the Robin Hood Foundation.
- The Grameen America program resulted in increased business ownership and monthly business earnings (monthly business revenue minus expenses). At the same time, the program reduced wage-based employment and monthly earnings from wage-based employment. Due to these offsetting effects, the program did not result in an increase in overall net income (gross earnings minus business expenses) in the prior month, the first of two primary outcomes. However, the program did result in a decrease in the types of material hardship experienced, the second primary outcome.
- The pattern of impacts on the study’s two primary outcomes is puzzling. The report proposes that part of the explanation for how the program decreased material hardship while not having an effect on income lies in the ways a small loan can provide liquidity to meet financial obligations. That is, borrowers may set aside some funds from the loan for a rainy day or to invest in more inventory that can later be used to maintain a steady flow of cash; they may also use funds from increased business revenue for everyday expenses. Is it possible that other aspects of the program are also contributing to ease material hardship? The study found increases in savings, access to credit, and social support, which could all contribute to reduced material hardship.
These findings are not the final word on the Grameen America evaluation. An upcoming report will assess the impacts of the program after 36 months. In addition to reporting on the same measures as those in this report, the next phase of the study will look at the impact of the program on assets such as the purchase of appliances to help support businesses. The longer-term follow-up period will provide a clearer picture of the effects of the Grameen America program.