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Identifying Independent Measurements of the
Benefits of Microfinance in Bangladesh

How should we measure the effects of microfinance? This is a critical question, because supporters of microfinance will continue to be challenged by those promoting more government intervention and skeptics who question the ingenuity and initiative of the free, responsible and largely female microfinance borrowers. One reason for this skepticism is that it is very difficult to clearly establish any direct causal link from any single development activity or investment to the macroeconomic trends of any country, no matter how large scale and convincing the activities and investments like those of microfinance might be. Direct causality on the macro level takes a very long time to establish objectively, but there are a variety of other indicators to measure and report regularly, including some key macro indicators, such as health.

A couple of such indicators are child mortality and life expectancy. When one compares these statistics, over time, for Bangladesh against what has been achieved in India and Pakistan, a striking trend is seen, as shown at www.gapminder.org (click Go straight to the graph and select India, Bangladesh and Pakistan in the areas of life expectancy and child mortality).Other indicators can also be found, as seen in the following list:

The fertility rate in Bangladesh has fallen from 6.4 in 1970 to 3.2 in 2004.
The number of deaths of children under five per 1,000 live births has fallen from 239 per thousand in 1970 to 77 in 2004.

More than 13,000 women have been elected to local government positions.
Bangladesh has overtaken India [in reducing its child mortality rate]. Had India matched Bangladesh's rate of reduction in child mortality over the past decade, 732,000 fewer children would die this year [in India].

These are impressive improvements, but it may not show up it the macro economic measurements for many years.

The difficulty measuring the macro benefits of microfinance are similar to measuring the productivity benefits of almost any capital investment, even large investments in information technology and telecommunications.

Since the first commercial computers were been installed in the 1950’s capital investment in computers and telecommunications grew steadily, rising to nearly 50 percent of all business capital spending in the US. As Simon London wrote in the Financial Times in 2003, “while the circumstantial evidence was strong, skeptics pointed out that there was no roof of a causal line between technology investment” and productivity. The Nobel Prize-winning economist Robert Solow of MIT declared in 1987 that “we see computers everywhere but in the productivity statistics.” But even though the link with technology and productivity is debated even today, no one is advocating or even considering giving up their personal computers and cell phones.

Nor should supporters of microfinance give in to skeptics who have no alternative approaches other than more government involvement, where the lack of productivity and success is at least solidly proven and well established by the inefficiency of socialist economies everywhere.

Given the difficulties of establishing causal links between microfinance and economic development, what other measurements are credible? There are many other alternative measurements that are more practical and useful than macro indicators, which tend to be politically motivated. More practical measurements of real benefits on the ground include the Grameen bank’s measurement of the following indicators that can be found at www.grameen-info.org:

Ten Indicators to Assess Poverty level
Muhammad Yunus
August, 2006

Every year GB staff evaluate their work and check whether the socio-economic situation of GB members is improving. GB evaluates poverty level of the borrowers using ten indicators.
A member is considered to have moved out of poverty if her family fulfills the following criteria:

1.	The family lives in a house worth at least Tk. 25,000 (twenty five thousand) or a house with a tin roof, and each member of the family is able to sleep on bed instead of on the floor.
2.	Family members drink pure water of tube-wells, boiled water or water purified by using alum, arsenic-free, purifying tablets or pitcher filters.
3.	All children in the family over six years of age are all going to school or finished primary school.
4.	Minimum weekly loan installment of the borrower is Tk. 200 or more.
5.	Family uses sanitary latrine.
6.	Family members have adequate clothing for every day use, warm clothing for winter, such as shawls, sweaters, blankets, etc, and mosquito-nets to protect themselves from mosquitoes.
7.	Family has sources of additional income, such as vegetable garden, fruit-bearing trees, etc, so that they are able to fall back on these sources of income when they need additional money.
8.	The borrower maintains an average annual balance of Tk. 5,000 in her savings accounts.
9.	Family experiences no difficulty in having three square meals a day throughout the year, i. e. no member of the family goes hungry any time of the year.
10.	Family can take care of the health. If any member of the family falls ill, family can afford to take all necessary steps to seek adequate healthcare.