Research shows: Microfinance makes a difference
Microfinance, or access to financial services, has an effect on the lives of the poor. This is one of the main conclusions of the extensive ING research ‘A Billion to Gain?’ that was developed together with the Dutch sector representative NpM, Platform for Inclusive Finance.
“We feel it’s important to contribute to inclusive finance,” says Mark Cliffe, chief economist of ING, who presented the research results, To encourage the development of prosperity in poor countries, further new approaches are needed where the emphasis shifts from the individual entrepreneur to small businesses. These findings and the development of the inclusive finance sector were the focus of the 'A Billion to Gain?’ conference at EYE Film Museum, Amsterdam on September 3rd, where the entire Dutch microfinance sector met.
Worldwide, 2.5 billion people have no access to financial services. Of this group, 1.2 billion live on less than one euro per day. Microfinance provides an important contribution to poverty alleviation by setting up financial structures and improving accessibility. Currently, some 250 million people worldwide make use of microfinance. There is an estimated capital of EUR 110 billion in this sector of which EUR 26 billion is financed by foreign investors. NpM’s thirteen members jointly provide EUR 2.5 billion (9.6%) to microfinance in developing countries.
But what is the actual impact on the lives of the poor?
The ING-NpM research conducted in India and Ghana finds that there are many positive effects from having access to financial services. At the same time it is also clear that microfinance is not the silver bullet to poverty it once promised to be. The research shows that microcredit is largely used for expanding existing businesses to generate more income. In both countries, borrowers feel less financial stress as it allows them to manage their daily payments better.
Another effect is that women feel more empowered in decision-making, both at home and outside the household. Although clients do reserve part of their income for education, no effect was measured on the level of education. Finally, the study shows that microcredit positively changes the quality of food consumption, which also positively affects the health of the poor.
NpM Director Josien Sluijs: "With this study, we emphasize the importance of impact measurement for investment decisions in this sector. These results clearly show that the impact of microfinance is far beyond the household budget. It affects numerous facets of life that seem obvious to us, but not to the poorest, such as education, health and empowerment. "
From micro to inclusive finance
The ING-NpM research clearly shows the importance of microfinance. Yet, the industry must continue to focus on improving access to financial services for all. The premise that everyone is an entrepreneur, or should be, is outdated. Many prefer a job. Therefore, funding to SMEs is key, as they are the main job creators throughout the world. Also, the industry will need to respond to the specific needs, such as the access to finance in fragile states, stimulating law and regulations and, the use of new technologies and innovations. These topics were also part of the ‘A Billion to Gain?’ conference.
Head ING Microfinance Roy Budjhawan "Currently, the recovery rate is decisive for the success of a microfinance institution. If the focus is shifted to actual measurable impact on people's lives, we can achieve so much more."