Impact of microfinance institutions on household welfare in Tanzania propensity score matching approach

Microfinance is now being considered as one of the most important and effective mechanisms for poverty alleviation through its impact on human welfare. This study mainly investigated the impact of microfinance on the households’ welfare through comparing clients who had access to financial services through microfinance in Tanzania versus those who did not. The study was aiming at evaluating differential in specific household characteristics such as consumption, education and health status between households with access to microfinance and those without access to these facilities and the impact of access to microfinance institutions on household welfare. The study used the Tanzania Finscope Survey (TFS) of 2013 dataset that measures the demand and access of financial services by adult Tanzania aged 16 years and above. The propensity score matching approach and balancing score model was employed to analyse the impact of Microfinance on welfare between borrowers and non-borrowers’ households in Tanzania. The empirical results revealed that the average treatment effect of monthly income on the treated was statistically significant among microfinance borrowers implying that borrowers tend to have a higher level of income than non-borrowers. However, the findings did not find any effect on the ownership of assets to borrowers regardless of having high income they benefited from microfinance’s credit. Generally, the study concluded that microfinance has an impact on households’ welfare through the expansion of income that may affect economic and social needs which may drive people out of depravation and vulnerability to poverty. In order to fulfil these objectives, the government needs to ensure that operations of microfinance service are sustainable and there is better allocation of the available scarce resources in order to have a greater number get access to financial service that can pull them out of poverty.