The long and the short of it: revisiting the effects of microfinance-oriented banks on household welfare in the Philippines

Although evidence on the impact of microfinance is continuously accumulating, little is known about how long-term presence of microfinance institutions affects household welfare. This study addresses the issue by evaluating a household-level panel data and a unique event in the Philippines when the microfinance industry was mainstreamed and commercialized in the banking sector with microfinance-oriented banks (MOBs), which began to open in 2004. We find that the positive effects of longer MOB presence on entrepreneurial income and activities diminish or even regress over time. Moreover, no significant impacts are noted on real expenditures. Heterogeneity analysis further reveals that no immediate or incremental effects were observed on real expenditures of poor families and the immediate positive effect on entrepreneurial income and activities did not accrue in the long run. Lastly, no significant long-term impacts are noted on real expenditures as well as likelihood of and income from entrepreneurial and wage and salary activities of non-poor families from MOB presence. We, however, argue that MOB presence may reduce vulnerability as it affords households to be entrepreneurs.