This paper applies the financing constraint approach to study whether microfinance institutions improved access to credit for microenterprises in Bosnia and Herzegovina. According to this approach, microenterprises with improved assess to credit rely less on internal funds for their investments. Thus, we compare investment sensitivity to internal funds of micorenterprises in municipalities with significant presence of MFIs to that of micorenterprises in municipalities with no (or limited) presence of MFIs using Living Standards Measurement Survey and MFI branch location data. Results indicate that MFIs
alleviated microbusinesses’ financing constraint. This approach is applicable to evaluating
microfinance impact in other countries