This study utilizes a nationally representative panel dataset drawn from the 2003, 2006, and 2009 FIES for the Philippines to analyze whether MOB presence in municipalities affects various measures of household welfare such as engagement in wage work and self-employment activities, wage and entrepreneurial income, and real expenditure on food, medical care, alcoholic beverage and tobacco, and education.
Deviating from the previous literature, this study examines not only the impact of long-term MOB presence in a municipality but also the differentiation of the impact into immediate, incremental, or total (net) effects. Furthermore, heterogenous effects by poverty level are also examined. We employ DID-FE and IPW to control for endogeneity problem associated with self-selection as well as sample attrition.
Results suggest that long-term MOB presence has an immediate positive impact on households’ engagement in and income from entrepreneurial activities.
However, these benefits diminish or even regress over time. We find similar results among poor households. That is, there are immediate gains in entrepreneurial income and activities but the incremental effects either regress or wane.
No significant effects are also noted on real expenditures of poor households.
Lastly, no significant impact on real expenditures as well as likelihood of and income from wage and salary and entrepreneurial activities was observed among non-poor families.
These findings show that positive effects of MOB presence are not evenly distributed among households, which prompts a rethinking of the role of microfinance in basic development outcomes for poor households. For those households that reside in municipalities with MOBs, while it raises the likelihood of households being microentrepreneurs, it does not fuel an escape from poverty.
Real expenditures do not increase for those who live in municipalities with long- term MOB presence. Similarly, income does not increase in the long run.
As such, MOB presence is not consequentially “transformative.” Nevertheless, by providing immediate opportunities to open or expand existing microbusinesses, it reduces vulnerability of clients, who would otherwise have been wage workers had not they received it. It affords households the opportunity to make intertemporal choices, including the freedom to choose which income-generating activities to undertake.
This study establishes the role of MOB presence in reducing vulnerability of households. It is hoped that these findings will encourage further empirical studies on the issues involved in advocating microfinance as an effective tool for poverty reduction, and lead to better micro- and macro-prudential policies towards a financially self-sustainable microfinance industry that will provide a wide range of products and services.
We suggest examination of whether the magnitude will increase, and whether the direction of the impacts will be the same: (1) if actual MOB borrowing of households are used instead of MOB presence and (2) in the presence of NGO microfinance providers in municipalities where there are MOBs. Our study was not able to account for actual borrowing of households from MOBs and NGO microfinance providers due to the absence of readily available information about their locations.
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Annex
TABLE A1. Logit estimates of probability household stayed
Variable Coefficients Robust Standard Error Household Head Sex (1=male; 0=female) 0.130*** 0.040
Household Head Age 0.007*** 0.001
Household Head Education -0.003*** 0.001
Family Size 0.055*** 0.006
House and/or land ownership (1=yes, 0=no) 0.273*** 0.031
No. of Observations 42,094
Note: Statistically significant at ***1 percent, **5 percent, and *10 percent level.
TABLE A2. Balance in covariates across stayers and attritors after using inverse probability of treatment weights with the propensity score
Mean in
Stayers Mean in
Attritors Standardized difference Household Head Sex (1=male; 0=female) 0.84 0.84 -0.011
Household Head Age 46.37 46.27 0.007
Household Head Education 8.61 8.46 0.008
Family Size 4.84 4.84 0.002
Amount of financial assets owned 8,788.11 7,021.21 0.019
House and/or land ownership (1=yes, 0=no) 0.69 0.69 -0.007
TABLE A3. Balance in covariates across continuing and never households after using inverse probability of treatment weights with the propensity score
Mean in
Stayers Mean in
Attritors Standardized difference Household Head Sex (1=male; 0=female) 0.48 0.51 -0.072
Household Head Age 50.38 50.05 0.025
Household Head Education 7.67 8.31 -0.038
Family Size 51.27 50.62 0.030
Amount of financial assets owned 10,283.52 7,046.96 0.052
House and/or land ownership (1=yes, 0=no) 0.78 0.77 0.016
TABLEA4. Effects of microfinance-oriented bank presence on all income households: IPW DID-FE Employment StatusIncomeReal Expenditure EmployedSelf- employedWage and Salaries
Entrepreneurial ActivitiesFoodMedical Care
Alcoholic Beverage
and TobaccoEducation Panel A: Treatment Group: Dropout Households (With MOB in 2006) Control Group: Never Households (No MOB) DROPOUT x POST0.066 [-0.019, 0.150]0.033 [-0.095, 0.161]-0.028 [-1.892, 1.836]0.351 [-0.640, 1.343]0.046 [-0.336, 0.429]2.693 [-1.662, 7.047]0.144 [-0.864, 1.153]0.590 [-0.468, 1.649] DROPOUT x POST x 2009-0.159** [-0.297, -0.022]0.128 [-0.033, 0.290]-0.654*** [-1.076, -0.232]-0.183 [-1.324, 0.959]-0.065 [-0.215, 0.085]0.418 [-0.144, 0.981]-0.277 [-0.618, 0.063]0.956** [0.085, 1.826] F-stat (test of joint significance)2.241.401.100.030.048.44***0.5411.78*** R-squared0.0250.0160.0380.0220.2480.0370.0420.084 No. of Observations11,90111,90111,90111,90111,90111,90111,90111,901 Year effectsYesYesYesYesYesYesYesYes Panel B: Treatment Group: Newcomer Households (With MOB in 2009) Control Group: Never Households (No MOB) NEWCOMER x POST-0.033 [-0.129, 0.063]0.076* [-0.006, 0.157]0.025 [-0.810, 0.861]1.184 [-0.870, 3.238]-0.044 [-0.106, 0.018]-0.083 [-0.368, 0.201]-0.032 [-0.345, 0.281]0.055 [-0.341, 0.450] NEWCOMER x POST x 2009-0.004 [-0.111, 0.103]-0.051 [-0.127, 0.025]-0.079 [-0.946, 0.787]0.033 [-1.164, 1.230]0.050 [-0.054, 0.154]0.227 [-0.271, 0.726]-0.061 [-0.278, 0.157]0.057 [-0.159, 0.274] F-stat (test of joint significance)0.560.390.012.290.000.200.590.31 R-squared0.0260.0150.0370.0200.2510.0280.0420.081 No. of Observations12,27912,27912,27912,27912,27912,27912,27912,279 Year effectsYesYesYesYesYesYesYesYes Notes: MOB = Microfinance-Oriented Bank. DID-FE refers to difference-in-differences fixed effects. Treatment is defined as presence of MOBs in the municipality where the household is residing. Household expenditures are deflated by consumer price indices of the goods and services with base year of 2012. Weight is from logit model where the dependent variable is an indicator of whether the household stayed or not and the control variables are household head’s age, sex, education, and family size as well as house ownership. The sample used to compute the weight includes households that dropped from the survey. Estimated coefficients for income and consumption are
elasticities for the arcsinh-linear specification with dummy independent variables or in percentage change in the outcome variable due to the discrete change in treatment dummy = 0 to dummy = 1.
The estimated coefficients for income and consumption expenditures that are not transformed into percentage change is available upon request from the author. Confidence intervals are in brackets. ***, **, and * indicate statistical significance at 1 percent, 5 percent, and 10 percent level, respectively.
TABLEA5. Heterogeneous effects of microfinance-oriented bank presence on bottom 30 percent income households: IPW DID-FE Employment StatusIncomeReal Expenditure EmployedSelf- employedWage and Salaries
Entrepreneurial ActivitiesFoodMedical Care
Alcoholic Beverage
and TobaccoEducation Panel A: Treatment Group: Dropout Households (With MOB in 2006) Control Group: Never Households (No MOB) DROPOUT x POST0.239*** [0.068, 0.411]-0.063 [-0.316, 0.190]-0.852** [-1.332, -0.371]-0.696** [-1.227, -0.165]0.029 [-0.230, 0.289]0.699** [0.118, 1.281]-0.461 [-1.427, 0.505]-0.541** [-1.071, -0.012] DROPOUT x POST x 2009-0.122 [-0.534, 0.289]0.006 [-0.071, 0.084]7.545 [-6.238, 21.330]-0.702** [-1.276, -0.127]-0.097** [-0.179, -0.015]0.175 [-0.636, 0.986]0.307 [-0.222, 0.836]1.455** [0.178, 2.733] F-stat (test of joint significance)0.190.200.0320.97***0.614.74**0.100.07 R-squared0.0340.0410.0270.0480.2050.0280.0370.142 No. of Observations3,8173,8173,8173,8173,8173,8173,8173,817 Year effectsYesYesYesYesYesYesYesYes Panel B: Treatment Group: Newcomer Households (With MOB in 2009) Control Group: Never Households (No MOB) NEWCOMER x POST-0.087 [-0.266, 0.091]0.098 [-0.074, 0.271]0.059 [-1.152, 1.270]0.468 [-1.960, 2.896]-0.094** [-0.173, -0.016]-0.204 [-0.531, 0.122]-0.255* [-0.529, 0.019]0.189 [-0.298, 0.675] NEWCOMER x POST x 2009-0.000 [-0.169, 0.168]-0.084 [-0.237, 0.068]-0.360 [-0.975, 0.256]-0.559* [-1.204, 0.086]0.102** [0.002, 0.201]0.270 [-0.279, 0.819]0.236 [-0.102, 0.574]-0.028 [-0.305, 0.249] F-stat (test of joint significance)1.040.040.370.190.000.000.211.17 R-squared0.0370.0370.0250.0390.2050.0270.0370.142 No. of Observations4,0514,0514,0514,0514,0514,0514,0514,051 Year effectsYesYesYesYesYesYesYesYes Notes: MOB = Microfinance-Oriented Bank. DID-FE refers to difference-in-differences fixed effects. Treatment is defined as presence of MOBs in the municipality where the poor household is residing. Household expenditures are deflated by consumer price indices of the goods and services with base year of 2012. Weight is from logit model where the dependent variable is an indicator of whether the household stayed or not and the control variables are household head’s age, sex, education, and family size as well as house ownership. The sample used to compute the weight includes households that dropped from the survey. Estimated coefficients for income and consumption
are elasticities for the arcsinh-linear specification with dummy independent variables or in percentage change in the outcome variable due to the discrete change in treatment dummy = 0 to dummy = 1.
The estimated coefficients for income and consumption expenditures that are not transformed into percentage change is available upon request from the author. Confidence intervals are in brackets. ***, **, and * indicate statistical significance at 1 percent, 5 percent, and 10 percent level, respectively.