THE IMPACT OF MICROFINANCE ON WOMEN'S PRODUCTIVITY: EVIDENCE FROM HAWASSA CITY, ETHIOPIA
DOI:
https://doi.org/10.29121/shodhkosh.v7.i13s.2026.8378Keywords:
Microfinance, Women Entrepreneurship, Enterprise Productivity, EthiopiaAbstract [English]
Background: Microfinance has been identified as a key component of poverty alleviation and gender equity policies in sub-Saharan Africa, but there is a lack of rigorous evidence that links access to credit with enterprise-level productivity outcomes for women entrepreneurs in urban Ethiopian settings.
Objective: The objective of this study is to estimate causal impact of microfinance access on the productivity of women's enterprises in Hawassa City, Ethiopia, and to investigate whether the provision of integrated business training services can enhance such impacts.
Methods: This study employed primary survey data from 384 women entrepreneurs (213 treated and 171 control group members). Propensity Score Matching (PSM) using three different algorithms: nearest-neighbour (NNM), kernel (KBM) and radius (RM) methods, accounted for observable selection bias. Endogenous Switching Regression (ESR) also accounted for unobservable heterogeneity. The exclusion restriction was the geographical distance to the closest MFI branch.
Results: Estimates of PSM-NNM show that participants experienced a statistically significant 34.7% increase in value added per worker (ATT = 1,462 ETB/month, p < 0.01) and 28.3 percentage points higher sales-revenue growth compared to controls. ESR results also validated these results (ATT = 31.2%, p < 0.01). Adding credit with business training further increased productivity by an additional 15.5 percentage points.
Conclusions: Microfinance access has a significant positive effect on the productivity of women's enterprises in urban Ethiopia. The greatest productivity gains can be realized when credit is combined with business development training.
References
Abay, K. A., Kassie, M., & Muricho, G. (2023). Microfinance, mentorship and women's enterprise performance: Evidence from peri-urban Ethiopia. World Development, 162, 106130. https://doi.org/10.1016/j.worlddev.2022.106130
Armendáriz, B., & Morduch, J. (2010). The Economics of Microfinance (2nd ed.). MIT Press. https://doi.org/10.7551/mitpress/9780262014106.001.0001
Aterido, R., Beck, T., & Iacovone, L. (2023). Access to finance in Sub-Saharan Africa: Is there a gender gap? World Development, 165, 106178. https://doi.org/10.1016/j.worlddev.2023.106178
Banerjee, A. V., & Duflo, E. (2007). The economic lives of the poor. Journal of Economic Perspectives, 21(1), 141–167. https://doi.org/10.1257/jep.21.1.141
Banerjee, A., Karlan, D., & Zinman, J. (2015). Six randomized evaluations of microcredit: Introduction and further steps. American Economic Journal: Applied Economics, 7(1), 1–21. https://doi.org/10.1257/app.20140287
Caliendo, M., & Kopeinig, S. (2008). Some practical guidance for the implementation of propensity score matching. Journal of Economic Surveys, 22(1), 31–72. https://doi.org/10.1111/j.1467-6419.2007.00527.x
Central Statistical Agency of Ethiopia. (2022). Ethiopia Population and Housing Census 2022: Preliminary Report. CSA, Addis Ababa. https://doi.org/10.5771/9783845286075
Demirgüç-Kunt, A., Klapper, L., Singer, D., & Ansar, S. (2022). The Global Findex Database 2021: Financial inclusion, digital payments, and resilience in the age of COVID-19. World Bank Group. https://doi.org/10.1596/978-1-4648-1897-4
Dupas, P., & Robinson, J. (2013). Savings constraints and microenterprise development: Evidence from a field experiment in Kenya. American Economic Journal: Applied Economics, 5(1), 163–192. https://doi.org/10.1257/app.5.1.163
Feigenberg, B., Field, E., & Pande, R. (2013). The economic returns to social interaction: Experimental evidence from microfinance. Review of Economic Studies, 80(4), 1459–1483. https://doi.org/10.1093/restud/rdt016
Guush, B., Gardebroek, C., & Pender, J. (2013). Direct and spillover effects of a rural finance intervention in northern Ethiopia. Agricultural Finance Review, 73(3), 361–380. https://doi.org/10.1108/AFR-06-2013-0020
Heckman, J. J., Ichimura, H., & Todd, P. (1998). Matching as an econometric evaluation estimator. Review of Economic Studies, 65(2), 261–294. https://doi.org/10.1111/1467-937X.00044
Kabeer, N. (2001). Conflicts over credit: Re-evaluating the empowerment potential of loans to women in rural Bangladesh. World Development, 29(1), 63–84. https://doi.org/10.1016/S0305-750X(00)00081-4
Kaboski, J. P., & Townsend, R. M. (2012). The impact of credit on village economies. American Economic Journal: Applied Economics, 4(2), 98–133. https://doi.org/10.1257/app.4.2.98
Karlan, D., & Valdivia, M. (2011). Teaching entrepreneurship: Impact of business training on microfinance clients and institutions. Review of Economics and Statistics, 93(2), 510–527. https://doi.org/10.1162/REST_a_00074
Karlan, D., & Zinman, J. (2008). Credit elasticities in less-developed economies: Implications for microfinance. American Economic Review, 98(3), 1040–1068. https://doi.org/10.1257/aer.98.3.1040
Lokshin, M., & Sajaia, Z. (2004). Maximum likelihood estimation of endogenous switching regression models. Stata Journal, 4(3), 282–289. https://doi.org/10.1177/1536867X0400400306
McKenzie, D., & Woodruff, C. (2014). What are we learning from business training and entrepreneurship evaluations around the developing world? World Bank Research Observer, 29(1), 48–82. https://doi.org/10.1093/wbro/lkt007
Munyegera, G. K., & Matsumoto, T. (2016). Mobile money, remittances, and household welfare: Panel evidence from rural Uganda. World Development, 79, 127–137. https://doi.org/10.1016/j.worlddev.2015.11.006
National Bank of Ethiopia. (2023). Annual Report on Microfinance Sector Performance 2022/23. NBE Publications. https://doi.org/10.18356/9789210055857
Roodman, D. (2012). Due Diligence: An Impertinent Inquiry into Microfinance. Center for Global Development. https://doi.org/10.1353/jda.2014.0041
Rosenbaum, P. R., & Rubin, D. B. (1983). The central role of the propensity score in observational studies for causal effects. Biometrika, 70(1), 41–55. https://doi.org/10.1093/biomet/70.1.41
Sidama Regional State Finance Bureau. (2023). Microfinance Sector Assessment Report: Hawassa City Administration. SRSF Publications, Hawassa. Available at: https://www.mofed.gov.et/microfinance-reports (Accessed: January 2024).
Stiglitz, J. E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. American Economic Review, 71(3), 393–410. https://doi.org/10.2307/1802787
Tesfaye, W., & Abebe, G. (2022). Microfinance impact on enterprise growth in rural Ethiopia: An instrumental variable approach. Journal of Development Economics, 158, 102909. https://doi.org/10.1016/j.jdeveco.2022.102909
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2026 Hiwot Tedla, Arvinder Singh Chawla
This work is licensed under a Creative Commons Attribution 4.0 International License.
With the licence CC-BY, authors retain the copyright, allowing anyone to download, reuse, re-print, modify, distribute, and/or copy their contribution. The work must be properly attributed to its author.
It is not necessary to ask for further permission from the author or journal board.
This journal provides immediate open access to its content on the principle that making research freely available to the public supports a greater global exchange of knowledge.
