Thesis (Ph.D.)--Brown University, 2008. / Vita. Advisor: Mark M. Pitt. Includes bibliographical references (leaves 81-85).

Over the past two decades, various development approaches and strategies have been devised by policymakers, international development agencies, nongovernmental organizations, and others aiming at poverty reduction in developing countries. Microfinance is a strategy that has become a hot development topic and increasingly popular since the early 1990s. A considerable amount of multi- and bilateral aid has been channeled into microfinance programs in the Third World with varying degrees of success. Microfinance involves providing financial services in the form of savings and credit opportunities to the working poor (Johnson & Rogaly, 1997). The impression left by many of the defenders of this ‘faith’ is that here lies a magic bullet that can help to raise the living standards of the poor and help them climb out of poverty. However, the real world is not so simple and information is scarce and limited to confirm the poverty reduction benefits accrued by microfinance interventions. To this effect, it may be argued that overselling the benefits of microfinance runs the risk of misunderstanding what realistically can be expected from microfinance. This can lead to disillusionment when microfinance fails to live up to its expectations. However, like all development interventions, donors, governments, and other interested parties demand evaluations and impact assessment studies to ascertain the achievements and failures of microfinance programs. This research paper focused on the assessment of microfinance efficacy on poverty reduction. The study employs indicator-based method of evaluation and draws on a new cross-sectional survey of nearly 610 households, some of which are served by microfinance institution. The results unraveled microfinance efficacy on poverty reduction and offer another set of risk management and coping options in times of shocks and disasters. Households that have access to the MFI programs had increased consumption and durable assets than the control group of non clients. The study concludes that microfinance makes a meaningful contribution to poverty reduction, significant improvements in livelihood and enables the participants to escape poverty. Therefore, MFI client households are relatively better off than non clients in as far as poverty levels are concerned.