Microfinance : Does it support households to achieve an income above self-sufficiency? Evidence from rural Northern Ethiopia
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- Master's theses (HH) 
While the expansion of Microfinance institutions throughout the third world is clear, the policy ramifications are not. As in many countries in Sub-‐Saharan Africa, program credit impact assessment has come under much scrutiny in Ethiopia. However, non-‐classical measurement error, self selection into the program, lack of valid exclusion restrictions, violation of key ignorability-‐of-‐treatment assumption coupled with difficulty of finding good identification strategy when conditional independence fails, complicates the identification of the causal effects of Microfinance. In this paper, the researcher identifies the impact of Microfinance on income and non-‐income indicators of poverty in the rural areas of the Tigray region of Ethiopia by using two rounds of regional representative household survey data that were collected in 2006, and more recently in 2010. In particular, the researcher studies whether microfinance credit is reducing poverty, helps the poorest of the poor and the amount of malnutrition reduced because of microfinance credit. In order to consistently identify the causal effect of participation in Microfinance and compare the results, the researcher uses two new estimators called Klein and Vella (KV) and minimum biased estimator along with the standard Heckman bivariate normal (BVN) selection model. The researcher finds consistent evidence of causal effect of participation in Microfinance on reducing child malnutrition and increasing annual per capita consumption expenditure when applying the three estimators. More importantly, the study has shown that the poorest of the poor are benefiting more from Microfinance credit program than the moderate poor rural households in Tigray. Findings also suggest that around 3% of the reduction in the gap of sever poverty in Tigray is made possible by program credit. Results show how Social Welfare programs aimed at poverty alleviation among those living in severe poverty can affect child malnutrition outcomes, which goes beyond the standard poverty measures of consumption and income.