The capability approach as a framework for assessing the role of microcredit in resource conversion: the case of rural households in the Madagascar highlands

Abstract

This article applies the capabilities approach in order to analyse microcredit as a tool for resource conversion permitting poor households to take advantage of latent opportunities. This approach calls for linking microcredit with the choices of the poor themselves. A sample of 290 rural households from the Madagascar highlands has been surveyed two consecutive years. To characterize the dimensions of poverty based on social practices of the poor and to inform about the most relevant dimensions available for a conversion process, data have been processed by a factor analysis. A hierarchical classification then permits the distribution of the households over three capabilities levels. Finally, an ordered multinomial logit brings out how microcredit influences the likelihood that a household receiving such a loan will reach a higher capability level. The main findings indicate that the microcredit represents a robust means to obtain a higher level of capability regardless the starting situation. Moreover, when the process of borrowing endures, poor households enter into a learning process which increases the effect of microcredit. Regardless of the gender of the household head, microcredit increases the probability to reach an enhanced level of capability, except for the poorest household headed by a woman. The education of the head of household improves the effect of microcredit only if the productive system implemented needs competences related to the educational attainment.

Microcredit and Economic Welfare: Experience of Poor Rural Households from Pakistan

“…Disparately of the different and deceptively contradictory conclusions that have been resulting from these empirical studies, which might reflect the diverse settings of the studies (as they emphasis on diverse geographical areas and lure on different methodologies), effect assessment though remnants one of the most influential tools by which programme efficiency can be measured (A. Hussain, 2004;Michel & Randriamanampisoa, 2017).…”

Conceptualizing financial capability: evidence from Indonesia

“…In other words, it does not address specifically whether microfinance programs enhance people’s financial capability. Indeed, there have been studies that attempted to evaluate the success of microfinance programs using the lenses of capability approach (Tseng, 2011; Cabraal, 2010; Michel and Randriamanampisoa, 2017), with differing conclusions.…”

The Indispensable Role of Financial, Psychological and Social Capabilities for Micro-Entrepreneurs: A Qualitative Analysis of Microfinance in Pakistan

“…The basic microfinance models, such as the model of Grameen Bank, were based on the premise that the poor primarily lacked money only (Michel & Randriamanampisoa, 2018). But few other researchers also established that financial capital alone cannot ensure entrepreneurs' success (Berge, et al, 2015;Mel, Mckenzie, & Woodruff, 2008).Hence, need of a comprehensive criterion like capability approach wasfelt by researchers to assess the effectiveness of microfinance.…”

“…Capability approach has emphasized on individuals' heterogeneity and socioeconomic context instead of mere financial terms (Michel & Randriamanampisoa, 2018).Studies have empirically established that microcredit access alone for funding income generating activities can hardly assure better economic outcomes (Singh & Dutt, 2018). Under this notion, few researchers have concluded that microfinance is a relative failure to promote business activities for reducing poverty (Fraser, 2010;Tseng, 2011).But most of the studies have argued that microfinance provides robust means to obtain higher level of capability (Michel & Randriamanampisoa, 2018). Moreover, the need of higher levels of psychological and social capabilities of clients has also been felt for entrepreneurial success (Newman, et al, 2014).…”