Microfinance – the lending of relatively small amounts to consumers, small businesses or sole-traders – is improving quality of life and increasing the resilience of low-income customers to withstand economic shocks, a new report has revealed.
It is also reaching people without prior access to financial services without creating overindebtedness.
There are around 25 million microfinance clients, representing 15 per cent of the global market, according to the 60 Decibels Microfinance Index – described as the world’s first microfinance social performance report based entirely on customer voice. The Index is based on interviews of 18,000 microfinance clients across 41 countries.
Microfinance institutions (MFIs) often focus on the most vulnerable populations, including women, people living in rural areas, and people living in poverty. Of the customers surveyed by 60 Decibels (60dB), 67 per cent are women and just under a third live below the $3.20/day World Bank Poverty line.
More than half of clients surveyed are accessing a loan for the first time through the microfinance institution. Women and lower income clients are also more likely to be first time microfinance borrowers.
Sasha Dichter, CEO of 60 Decibels, said: “MFIs play a vital role in improving wellbeing to clients in developing countries. However, until now, their managers and investors have not been able to see what ‘good’ social performance looks like, or which MFIs are creating the best outcomes. By listening directly to microfinance clients around the globe, with a standard approach that allows for comparison, we are empowering these investors and managers to better deliver social impact and target improvements where they are needed most.”
“The 60 Decibels Microfinance Index provides unambiguous evidence that MFIs can change lives for the better. More importantly, it shows what performance benchmarking could look like covering all microfinance institutions, everywhere – providing everyone with clear, actionable insight for getting from good to great.”
This research also reveals thar the majority of clients report improvements in their quality of life because of the MFI loan. While one-third of clients place themselves in the top ‘very much improved’ quality of life category, a strong endorsement that these marginalised clients feel their lives are changing for the better thanks to their access to microfinance.
60 Decibels also found that three in four clients report their loan repayments are ‘not a problem’ and they ‘strongly agree’ to understanding their loan terms and conditions. In fact, across all regions, more women than men agreed their loan repayments were ‘not a problem’ (73 per cent of women compared with 67 per cent of men). However, the report also found that six per cent of borrowers report their payments to be a ‘heavy burden’.
Access to microfinance loans helps borrowers withstand economic shocks – such as emergency expenses – though women remain more vulnerable. One in three of the clients in the 60dB MFI Index would find it difficult to cover an emergency expense of 1/20th of Gross National Income per capita, compared to one in two 2 globally, according to Findex.
The microfinance effect
- 88 per cent of microfinance borrowers agree their quality of life has improved
- 34 per cent say quality of life is ‘very much improved’
- 73 per cent of borrowers report increased household incomes
- Seven out of 1 say personal savings and financial resilience have improved
- 10 out of top 10 microfinance institutions are in sub-Saharan Africa