The Impact of Microfinance on Poverty Alleviation

145 Pages·2017·1.83 MB·English

The Impact of Microfinance on Poverty Alleviation:
A Case Study of Borrowers in Ramallah

:رقفلا نم فيفختلا ىلع رغصلا يهانتملا ليومتلا رثأ
الله مار يف نيضرتقملا لوح ةيسارد ةلاح

Prepared by: Razan Issed
Supervised by: Dr. Riyad Musa

February 2017
The Impact of Microfinance on Poverty Alleviation:
A Case Study of Borrowers in Ramallah

:رقفلا نم فيفختلا ىلع رغصلا يهانتملا ليومتلا رثأ
الله مار يف نيضرتقملا لوح ةيسارد ةلاح

Prepared by: Razan Issed

Thesis Committee Members:
Dr. Riyad Musa (Supervisor)……………………………………….
Dr. Bayan M. Arqawi (Internal Examiner)………...………..……...
Dr. Tareq Sadeq (Internal Examiner) ………………………………

This thesis was submitted in partial fulfillment of the requirements for
the Master’s Degree in Economics from the Faculty of Graduate Studies
at Birzeit University, Palestine

February 2017
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Acknowledgments
The completion of this research would not have been possible without the generous support of
many kind individuals, to some of whom it is possible to give particular mentioning here.
Foremost, I would like to express my sincere gratitude to my supervisor, Dr. Riyad Musa, for his
support and patience at all times. His continuous guidance and persistent help have been
invaluable.
I would also like to express my sincere appreciation to Dr. Bayan M. Arqawi for her strong
support, critical review and insightful comments. Her detailed feedback was crucial for enriching
the quality of the carried out analysis.
I would also like to extend my thanks and recognition to Dr. Tareq Sadeq for his intuitive
comments and suggestions for enhancing this research.
Finally, special thanks go to Sharakeh’s Coordinator and to ACAD, Asala and Faten’s staff and
borrowers for their unconditional support. This work would have not seen light without their
cooperation.
Last but not least, I would like to express my deepest gratitude to my family for their endless
support, encouragement and patience.

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Abstract
This study challenges the Neoliberal perspective relating to the positive impact of microfinance
on poverty alleviation. In particular, this study examines whether microfinance improves
household welfare and develops businesses, as perceived by borrowers from ACAD, Asala and
Faten’s branches in Ramallah, Palestine.
Eight indicators are used to capture the impact of microfinance on household welfare including
income, consumption expenditure, nutrition, education, health care, non-land asset holdings,
housing conditions and social empowerment. In addition, three business indicators are used to
examine the impact of microfinance on business development. These include business sales,
profits and capital.
This study also employs four microfinance variables to estimate their impact on household
welfare. These include the cumulative value of microfinance loans, length of participation in
microfinance programs, total number of microfinance loans and average annual interest rate. The
logistic regression results show that longer involvement in microfinance programs increases the
odds of perceiving improvements in income, consumption expenditure and social empowerment.
Besides, increasing the total number of microfinance loans increases the odds of better-perceived
access to health care. However, higher cumulative value of microfinance loans decreases the
odds of better-perceived income, consumption expenditure, education and health care, and higher
interest rates decrease the odds of better-perceived income, consumption expenditure, nutrition,
education, housing conditions and social empowerment.
Models focusing on business development indicators employ three microfinance variables,
namely; cumulative value of microfinance loans, length of involvement in microfinance
programs and average annual interest rate. The study finds that longer involvement in
microfinance increases the odds of reporting improvements in business sales, profits and capital.
However, higher interest rates decrease the odds of increased profits while the cumulative value
of loans does not impact business development indicators.
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يذيفنت صخلم
موقت ،ديدحتلابو .رقفلا نم فيفختلا يف رغصلا يهانتملا ليومتلل يباجيلإا رثلأا لوح يلاربيلوينلا روظنملا ةساردلا هذه ىدحتت
رظن ةهجو بسحب كلذو ،لامعلأا ريوطتو ةرسلأا ةياعر نم نسحي رغصلا يهانتملا ليومتلا ناك اذإ اميف صحفب ةساردلا هذه
.نيطسلف - الله مار يف نتافو ةلاصأو داكأ عورف نم نيضرتقم
،ةيكلاهتسلإا تاقفنلاو ،لخدلا :يهو ،تارشؤم ةينامث ةساردلا مدختست ،ةرسلأا ةياعر ىلع رغصلا يهانتملا ليومتلا رثأ ةساردل
ىلإ ةفاضلإاب .يعامتجلإا نيكمتلاو نكسلا فورظو ،يضارلأا ريغ نم لوصلأا ةيكلمو ،ةيحصلا ةياعرلاو ،ميلعتلاو ،ةيذغتلاو
،ةيراجتلا لامعلأا روطت ىلع رغصلا يهانتملا ليومتلا رثأ ةسرادل يراجتلا لمعلل تارشؤم ةثلاث ىلع ةساردلا دمتعت ،كلذ
.يراجتلا لاملا سأرو حابرلأاو تاعيبملا تارشؤملا هذه لمشتو
:يهو ،ةرسلأا ةياعرب ةصاخلا يتسجوللا رادحنلإا جذامن يف رغصلا يهانتملا ليومتلل تاريغتم ةعبرأ ةساردلا مدختست امك
يلامجلإا ددعلاو ،رغصلا يهانتملا ليومتلا جمارب يف طارخنلإا ةدمو ،رغصلا يهانتملا ليومتلا ضورقل ةيلامجلإا ةميقلا
يف طارخنلإا ةدم ةدايز نأ يتسيجوللا رادحنلإا جئاتن رهظتو .يونسلا ةدئافلا رعس طسوتمو ،رغصلا يهانتملا ليومتلا ضورقل
نيكمتلاو ،يكلاهتسلإا قافنلإاو ،لخدلا ىوتسم نسحتب نيضرتقملا ساسحإ تلاامتحإ نم ديزت رغصلا يهانتملا ليومتلا جمارب
ىوتسم نسحتب ساسحلإا تلاامتحإ ةدايز ىلإ رغصلا ةيهانتملا ضورقلا ددع يف ةدايزلا يدؤت ،كلذ ىلإ ةفاضلإاب .يعامتجلاا
نم دحلا ىلإ رغصلا يهانتملا ليومتلا ضورقل ةيلامجلإا ةميقلا يف ةدايزلا يدؤت ،لباقملا يف .ةيحصلا ةياعرلا ىلع لوصحلا
عافترإ يدؤي امك .ةيحصلا ةياعرلا ىلع لوصحلاو ،ميلعتلاو ،كلاهتسلإا تاقفنو ،لخدلا ىوتسم نسحتب ساسحلإا تلاامتحإ
نكسلا فورظو ،ميلعتلاو ،ةيذغتلاو ،كلاهتسلإا تاقفنو ،لخدلا ىوتسم نسحتب ساسحلإا تلاامتحإ نم ليلقتلا ىلإ ةدئافلا راعسأ
.يعامتجلاا نيكمتلاو
ةميقلا :يهو رغصلا يهانتملا ليومتلل تاريغتم ةثلاث ةيراجتلا لامعلأا روطت تارشؤم ةساردب ةصاخلا جذامنلا فظوت
.يونسلا ةدئافلا رعس طسوتمو ،رغصلا يهانتملا ليومتلا جمارب يف طارخنلإا ةدمو ،رغصلا يهانتملا ليومتلا ضورقل ةيلامجلإا
تاعيبم ىوتسم نسحت تلاامتحإ نم ديزت رغصلا يهانتملا ليومتلا جمارب يف طارخنلإا ةدم ةدايز نأ ىلإ ةساردلا صلختو
ريشت امنيب ،حابرلأا ةدايز تلاامتحإ نم ليلقتلا ىلإ ةدئافلا راعسأ عافترإ يدؤي ،لباقملا يف .ةيراجتلا لامعلأا لامسأرو حابرأو
.ةيراجتلا لامعلأا روطت تارشؤم ىلع رغصلا يهانتملا ليومتلا ضورق ةميقل ريثأت يأ دجوي لا هنأب جئاتنلا
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Abbreviations
ACAD Arab Center for Agriculture Development
EPCGF European Palestinian Credit Guarantee Fund
GDP Gross Domestic Product
JOD Jordanian Dinars
LGF Loan Guarantee Facility
LOG Logarithm
MDG Millennium Development Goal
MFI Microfinance Institution
NGO Non-Governmental Organization
NIS New Israeli Shekels
OR Odds Ratio
PCBS Palestinian Central Bureau of Statistics
PDF Palestinian Development Fund
PECDAR Palestinian Economic Council for Development and Reconstruction
PIF Palestine Investment Fund
PMA Palestine Monetary Authority
PNA Palestinian National Authority
SE Standard Error
SMEs Small and Medium Enterprises
UNDP United Nations Development Program
UNRWA United Nations Relief and Works Agency for Palestine Refugees
USD United States Dollars
VIF Variable Inflation Factor
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Table of Contents
Chapter 1 : Introduction .................................................................................................................. 1
1.1 Problem Background ............................................................................................................. 1
1.2 Research Questions ............................................................................................................... 3
1.3 Objectives of the Research .................................................................................................... 3
1.4 Significance of the Study ...................................................................................................... 3
1.5 Limitations of the Research................................................................................................... 5
1.6 Research Outline ................................................................................................................... 5
Chapter 2 : Microfinance in the West Bank.................................................................................... 6
2.1 Brief Overview of the Palestinian Economy ......................................................................... 6
2.2 Review of the Financial Sector in Palestine .......................................................................... 8
2.2.1 The Banking Subsector in the West Bank ...................................................................... 9
2.2.2 Microfinance in the West Bank .................................................................................... 11
2.2.3 Microfinance in Ramallah ............................................................................................ 21
Chapter 3 : Literature Review ....................................................................................................... 22
3.1 Financial Resources for the Poor ........................................................................................ 22
3.2 Microfinance Products and Services ................................................................................... 24
3.3 Analysis of the Impact of Microfinance .............................................................................. 26
3.3.1 Impact Assessments of Microfinance Across the World.............................................. 27
3.3.2 Critiques on Microfinance ............................................................................................ 31
3.3.3 Impact Assessments of Microfinance in Palestine ....................................................... 33
3.4 Conceptualizing Poverty ..................................................................................................... 37
3.4.1 Economic Well-Being .................................................................................................. 38
3.4.2 Capability Poverty ........................................................................................................ 39
3.4.3 Social Exclusion ........................................................................................................... 40
3.5 Economic Theories of Poverty ............................................................................................ 42
3.5.1 The Classical School .................................................................................................... 42
3.5.2 The Neoclassical School ............................................................................................... 43
3.5.3 The Keynesian School .................................................................................................. 44
3.5.4 The Neoliberal School .................................................................................................. 45
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3.5.5 The Marxist School ...................................................................................................... 45
3.6 Theoretical Framework ....................................................................................................... 46
Chapter 4 : Research Design and Methodology ........................................................................... 49
4.1 Research Area ..................................................................................................................... 49
4.2 Research Methodology ........................................................................................................ 50
4.3 Research Model ................................................................................................................... 52
4.3.1 Logistic Models for Household Welfare Indicators ..................................................... 53
4.3.2 Logistic Regression Models for Business Development Indicators ............................. 53
4.3.3 Diagnostics for Logistic Regression Models ................................................................ 58
Chapter 5 : Empirical Analysis ..................................................................................................... 61
5.1 Frequencies and Descriptive Statistics ................................................................................ 61
5.1.1 Socio Demographic Characteristics .............................................................................. 61
5.1.2 Characteristics of Business Activities .......................................................................... 63
5.1.3 Loan Features ............................................................................................................... 65
5.2 Regression Results .............................................................................................................. 68
5.2.1 Impact of Microfinance on Perceived Household Welfare .......................................... 68
5.2.2 Impact of Microfinance on Business Development ..................................................... 83
Chapter 6 : Discussion .................................................................................................................. 88
6.1 Client Targeting................................................................................................................... 88
6.2 Impact of Microfinance on Household Welfare .................................................................. 90
6.3 Impact of Microfinance on Business Development ............................................................ 95
Chapter 7 : Conclusion.................................................................................................................. 98
References ................................................................................................................................... 100
Appendix A : Questionnaire ....................................................................................................... 107
Appendix B : Regression Diagnostics ........................................................................................ 119
B.1 Regression Results Before Omitting Outliers and Influential Observations .................... 119
B.2 Outlier and Influence Diagnostic Plots ............................................................................. 119
B.3 Multicollinearity Diagnostics ........................................................................................... 119
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List of Tables
Table 2.1: Value of Disbursed Loans in Palestine Over 2010 - 2015 ........................................... 10
Table 2.2: Legal Form of Micro-Lending Organizations in Palestine as of August 2016 ............ 13
Table 2.3: Microfinance Outreach Indicators for Sharakeh MFIs as of June 2016 ...................... 14
Table 2.4: Summary of Faten’s Financial Products ...................................................................... 20
Table 4.1:Description of Variables in Household Welfare Logistic Models ................................ 54
Table 4.2: Variables Used in Business Development Logistic Models ........................................ 57
Table 5.1: Cross-Tabulation of Age Category and Gender .......................................................... 62
Table 5.2: Cross-Tabulation of Educational Attainment and Gender........................................... 62
Table 5.3: Logistic Regression Results - Household Welfare ...................................................... 69
Table 5.4: Logistic Regression Results – Business Development ................................................ 70
Table B.1: Logistic Regression Results Including Outliers and Influential Observations -
Household Welfare .............................................................................................................. 121
Table B.2: Logistic Regression Results Including Outliers and Influential Observations –
Business Development ........................................................................................................ 122
Table B.3: Results of Multicollinearity Diagnostic Testfor Household Welfare Models .......... 134
Table B.4:Results of Multicollinearity Diagnostic Testfor Model on Education ....................... 134
Table B.5: Results of Multicollinearity Diagnostic Test for Model on Health .......................... 134
Table B.6: Results of Multicollinearity Diagnostic Tests for Business Development Models .. 135

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List of Figures
Figure 2.1: GDP in Palestine, 2010 – 2015 at Constant Prices (Base Year 2004) ......................... 7
Figure 2.2: Distribution of Sharakeh MFIs’ Loans by Economic Activity .................................. 15
Figure 2.3: Asala’a Distribution of Loan Portfolio by Economic Sector ..................................... 18
Figure 2.4: Faten's Portfolio, 2013 - 2015 .................................................................................... 19
Figure 5.1: Respondents’ Educational Attainment ....................................................................... 63
Figure 5.2: Distribution of Businesses by Sector.......................................................................... 64
Figure 5.3: Additional Business-Financing Resources ................................................................. 65
Figure 5.4: First-Ranked Reason for Borrowing .......................................................................... 67
Figure B. 1: Outlier and Influence Diagnostic Plots – Income ................................................... 123
Figure B. 2: Outlier and Influence Diagnostic Plots –Consumption Expenditure ...................... 124
Figure B. 3: Outlier and Influence Diagnostic Plots - Nutrition ................................................. 125
Figure B. 4: Outlier and Influence Diagnostic Plots - Education ............................................... 126
Figure B. 5: Outlier and Influence Diagnostic Plots –Health Care............................................. 127
Figure B. 6:Outlier and Influence Diagnostic Plots - Non-Land Assets..................................... 128
Figure B. 7: Outlier and Influence Diagnostic Plots - Housing Conditions ............................... 129
Figure B. 8: Outlier and Influence Diagnostic Plots - Social Empowerment ............................. 130
Figure B. 9: Outlier and Influential Diagnostic Plots - Sales ..................................................... 131
Figure B. 11: Outlier and Influential Diagnostic Plots - Profits ................................................. 132
Figure B. 12: Outlier and Influence Diagnostic Plots - Capital .................................................. 133
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