The wider impacts of microfinance
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Most MFIs seek to promote the business of their clients and thereby raise client incomes. Some MFIs also invest in services intended to achieve direct social impacts in the form of raising awareness on health, encouraging children's education, promoting women's empowerment within households and so on. MFI achievements on this front have been relatively well-documented. Less well-documented are impacts that go beyond individual clients, their households and their businesses and occur within the wider community. Such impacts relate to poverty in the wider community, to social inequalities of various kinds and to the lack of participation by poor people, particularly poor women, in public decision-making forums.
Little is known about these wider impacts, despite their importance for the broader goals of development, because individual MFIs have no incentive to document them. In other words, such information is a classic 'public good' (which everyone would benefit from but no one would like to invest in).
Key questions concerning the wider impacts of microfinance are:
What are the wider impacts and how significant are they?
Where they are positive, how can they be achieved and where they are negative, how can they be avoided?
What are the implications for impact monitoring systems?
In the Imp-Act programme, certain wider economic impacts resulted from the provision of savings and insurance services. For instance, the FINCA (Foundation for International Community Assistance) project in Uganda demonstrated that micro-insurance increases income stability of both MFI clients and non-clients within the community as the local economy benefits from a more stable circulation of money and increased trade. Some MFIs such as BRI (Bank Rakayat Indonesia) may not have strong direct impacts on poverty but have excellent indirect impacts through generation of labour market opportunities for the poor.
The use of group-based approaches by MFIs was found to play an important role in achieving wider social impacts. A study from Russia and Eastern Europe found positive effects on both relationships between group members as well as with local government staff. Studies from Bangladesh and India show that group-based microfinance services build trust between members, improve relationships within the wider community and increase self-confidence on the part of members in their dealings with government and locally elected officials. In a number of cases, they promote collective action on the part of members in pursuit of their rights. However, there is also the possibility of negative wider impacts. Group-based strategies in certain contexts gave rise to conflicts among members, the exclusion of the least advantaged and the widening of social inequality. Clearly, the approaches taken to group formation matter.
In general, an MFI's impact on poverty is wider if it reaches out to a greater number of people. However, this does not justify dispensing with 'targeted' programmes because the very poor - those completely without assets - are also most likely to be excluded from the programmes themselves and least likely to benefit from the wider impacts. Tightly targeted programmes such as the IGVGD (Income Generation for Vulnerable Groups Development) in Bangladesh try to reach this category of the poorest through a number of stages, which build their capacity to benefit from financial services. Alternatively, they can be reached through geographical targeting: PRADAN (Professional Assistance for Development Action) and CYSD (Centre for Youth and Social Development), for instance, between them cover the eight poorest states of India and use district level indicators to identify areas of poverty within these states. They use a self-help group approach to promote the capacity of the poor to manage their own finances before linking them to the nationalised commercial banking sector.
The number of individuals affected indirectly by microfinance is sufficiently large in relation to those affected directly, that 'wider' economic and social impact needs to be included in a serious assessment of impact. The methodologies used to do this under Imp-Act provide one set of lessons for future efforts of this kind while attempts by FINRURAL (La Asociación de Instituciones Financieras para el Desarrollo Rural) and BRAC (Bangladesh Rural Advancement Committee) to make this work financially sustainable offer other lessons.
Naila Kabeer
Institute of Development Studies
University of Sussex
Brighton BN1 9RE
UK
T +44 (0) 1273 606261
F +44 (0) 1273 621202
N.Kabeer@ids.ac.uk
Paul Mosley
Department of Economics
Sheffield University
9 Mappin Street
Sheffield S1 4DT
UK
T + 44 (0)114 2223398
F +44 (0)114 2223458
p.mosley@sheffield.ac.uk
The wider impacts of microfinance - To learn more about this author, visit id 21's Website.
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