Measuring Transformation: Assessing and Improving the Impact of Microcredit

A paper commissioned by the Microcredit Summit Campaign for the 1999 Meeting of Councils, written by Susy Cheston, Executive Director, Womens Opportunity Fund and Larry Reed, Managing Director, Opportunity International Network.

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Executive Summary

Overview: The question of impact assessment is one that continues to plague microcredit practitioners. Some contend that existing impact assessment studies are meaningless, while others maintain they are absolutely necessary. The authors of this paper advocate for a new paradigm for impact assessment. They outline the key principles for conducting impact audits that include measurement of transformation among clients. They also review a series of practitioner-oriented impact assessment tools and outline future challenges for practitioners, donors, and academics in advancing the usefulness of impact assessment efforts.

Summary: The debate about impact assessment begs the question of "measuring impact for what purpose?" The authors support the use of impact measurement tools that incorporate financial measures and indicate transformation—that is, deeply rooted change in the lives of individuals or communities-among clients. This paper acknowledges the problems with measuring impact, including issues of academic rigor, cost, and required expertise. Nevertheless, the authors cite the weaknesses of assuming the marketplace is an adequate proxy for impact data and maintain that practitioners should measure impact in order to determine whether microcredit institutions have met their stated purpose-alleviating poverty.

Therefore, the authors call for adoption and implementation of practitioner-oriented impact assessment tools that support a new paradigm for impact measurement, one based on the concept of an impact audit. They highlight the weaknesses of typical impact studies and emphasize that the audit is designed not as an academic study, but as an internal management tool. The purpose is both to determine results and to improve programs.

Using the model of a financial audit, general guidelines for the purpose and scope of an impact audit are given, especially the criteria managers should use in selecting appropriate tools. The criteria include analyses of trends over time, comparison with previous impact data, ease of implementation by existing staff, incorporation into existing management information systems and costs comparable to those spent on financial audits.

As a first step in equipping managers to locate these tools, the authors provide short profiles of some of the best practitioner-oriented tools available. They include a description of each tool, sample questions or data gathered, and a brief summary of the tool’s key strengths and weaknesses. The appendix also contains additional abstracts of impact assessment tools and other resources.

Finally, the authors call on practitioners to reclaim impact assessment as an essential management tool. They also beckon donors to fund the development of replicable tools and reward organizations that use them. They ask consultants to develop expertise in applying these tools. And they point out that clients need to understand that their participation is crucial to the success of all impact assessment efforts.