Microfinance loans improve the overall quality of life of borrowers. And repaying that money was no particular burden.
Those are some of the findings from research conducted for the 2021-2022 Microfinance Index of 60 decibels, aimed at assessing the effectiveness of microfinance practices – by talking to clients. Based on interviews with approximately 18,000 microfinance customers from 72 microfinance institutions (MFIs) in 41 countries, the survey measured results in five areas: access, business impact, household impact, financial management and resilience. The goal: to form benchmarks based on those outcomes, the better the performance of different MFIs can be assessed.
“You can look at things like policies and procedures and the number of customers reached, but that’s much less effective than talking to customers around the world about what they think works and what doesn’t,” said Sasha Dichter, CEO of 60 decibelss, an impact measurement company.
Quality of life and reimbursement
Most notably, the survey found that clients report significant improvement in their standard of living. About 88% of borrowers agree that their quality of life has improved and a significant number (34%) say their quality of life has “improved very much”. And 73% report experiencing increased family income.
In addition, the results indicate that customers were better able to cope with economic shocks, which is clearly an urgent matter in light of the impact of the pandemic on livelihoods. “A large proportion of customers report greater economic resilience,” says Dichter.
What’s more, while critics of the approach tend to point to the potential for loan repayments as an insurmountable burden, the report found that 3 in 4 customers say their repayments are “no problem.” Even more women than men describe their repayments as “no problem” (73% of women vs. 67% of men). Also, perhaps as a result of MFIs’ efforts to educate customers, 7 in 10 say they ‘completely agree’ that they understand the terms of their loan.
At the same time, the report finds that 6% of borrowers characterize their payments as a “heavy burden.” According to Dichter, the survey found no specific characteristics shared by borrowers who struggle to repay their loans. But “With a more vulnerable population, it’s no surprise that some people have that experience,” says Dichter. “The question is how big that group is and what steps the industry is taking to address it.”
Some other notable findings:
- A quarter of customers cited their success in investing in or growing their business as a reason for improving their quality of life. They cited this explanation more often than being able to pay for household expenses or a more general increase in income.
- Microfinance reaches people without access to financial services. More than half of borrowers are accessing a loan for the first time. This is especially true for women and customers with lower incomes.
- The group loan model remains effective. MFIs that are mainly group lenders are more successful in collaborating with poorer clients. They will also be more likely to appeal to women and have customers who are borrowing microfinance for the first time.
- The main MFIs are located in sub-Saharan Africa. Although organizations in that region make up less than half of the MFIs surveyed, they make up all of the top 10 organizations in the index.