Recently, I held the final meeting for the advanced undergraduate finance class I teach at Brigham Young University. When the students arrived for the meeting, they heard from Warner Woodworth, an organizational behavior professor at BYU who is a pioneer and avid advocate of microfinance. Warner presented a slideshow explaining how he has set up several non-government organizations to extend microcredit to poor entrepreneurs around the world.

Warner explained the case of Enterprise Mentors International, an organization he and others founded that currently serves the poor in Peru, El Salvador, Guatemala, the Philippines and Mexico. Millions have been helped through microcredit. The concept of microfinance is that the poor can pull themselves out of poverty if given the chance, through their hard work and small loans. Loans as small as $20 have been known to help the poor create and grow their own businesses.

After class, several of my accounting students told me that they were grateful we ended the semester talking about how to use finance to help the poor, as opposed to talking about how to do finance for Fortune 500 companies.

During the past nine years of working at BYU and observing Warner in his efforts to help the poor, I have been impressed enough to research the impact that microfinance has on poor clients. I joined forces with Warner and Shon Hiatt of Cornell University to study the impact that microcredit had on 393 poor Guatemalan households.

We have prepared a report on our research, which is scheduled for publication in the August issue of Managerial Finance. In this report, we study the impact of microfinance from both a financial and a social dimension. Advocates commonly assert that one of the greatest benefits of microfinance is that it empowers

women. It is typical for more than 95 percent of microcredit from non-government organizations to be issued to women. It is also typical for repayment rates to be more than 95 percent, better than many developed-nation lending statistics.

In our study, we examine five organizations that serve the poor in Guatemala. Our sample of clients consists of 221 rural and 172 urban entrepreneurs. The average household amount spent on living expenses is $213. In these types of studies, the amount spent is typically interpreted as the amount earned, because the poor tend to spend everything they earn. Because the poor obtain money from various avenues each month, it is difficult to track the total amount earned. It is easier to track how much is spent. So a $213 monthly expense equates to an annual income of $2,556. This meager income is used to support an average household size of 5.3 people, according to our sample.

The outcome variables we study include the economic indicators of an earnings metric and a poverty ranking. We include six social indicators of food, health, housing, education, empowerment and social standing. Through a host of statistical tests, we show that microcredit programs do add value to the poor, with the primary areas of improvement being housing, health and client empowerment.

The world of microfinance received added attention in 2006 when Muhammad Yunus was awarded the Nobel Peace Prize for his work with the Grameen Bank of Bangladesh. Despite this coverage, many of my students were unfamiliar with the microfinance movement and the opportunities for helping the poor.