Microfinance’s transformational potential: looking beyond average treatment effects

Abstract Hundreds of studies have examined the impacts of microfinance, finding mostly modest or disappointing results. In this article, instead of asking whether microfinance works on average, we study the varied impacts of microfinance. Using data from several prominent recent studies, we show that the heterogeneity in returns to microcredit, microsavings, and microinsurance is large. This means that even programmes that are not effective on average could be transformational for some people. We call for researchers and policy-makers to focus more on identifying those who will benefit from microfinance, and understanding why they do. Together this will improve the targeting of these interventions, increase their positive impact, and help improve the design of future products.