What do we want to know?
Micro-leasing, micro-credit and micro-savings are three financial inclusion interventions which have the potential to transform the lives of those with limited access to financial services. In theory they have the potential to enable investment in income generating activities, consumption smoothing and financial planning.
This review set out to address questions about whether micro-leasing, micro-credit and micro-savings reduce poverty, enable women greater economic empowerment, enable poor clients to engage in economic opportunities and the extent to which these opportunities are meaningful in terms of financial outcomes.
What did we find?
Whilst the varied nature of the evidence makes it difficult to draw conclusions, it is clear that both micro-credit and micro-savings can reduce poverty but do not in all circumstances nor for all clients.
- We found no studies of the impact (positive or negative) of micro-leasing, either on engagement in economic opportunities or on the financial outcomes of such engagement.
- Micro-credit sometimes increases engagement in economic opportunities, but not always. Micro-credit can also increase income in some circumstances, but reduce it in others. It has similarly mixed impacts on levels of savings and accumulation of assets, and in most cases reduces expenditure, although the advantages or disadvantages of the latter are not entirely clear.
We found no evidence that micro-savings enables engagement in economic opportunities, although in some cases, but not all, it increases income, savings, expenditure and the accumulation of non-financial assets.
- Even when combined, the provision of micro-savings and micro-credit has little impact on clients’ engagement in economic opportunities. Combined services have mixed impacts on income, the accumulation of non-financial assets and on expenditure. There is little evidence about the impact of combined services on levels of savings. There is not enough evidence to ascertain whether or not these financial interventions have different impacts at the individual, household or business levels, nor can we identify patterns in the exact circumstances in which microfinance has positive impacts for clients.
- Based on the studies in this review we cannot tell whether group or individual lending models are more effective forms of micro-credit.
- We also cannot tell whether combining micro-credit, micro-leasing or micro-savings with other complementary interventions such as business training makes a difference.
- Whilst some reviewed studies targeted women specifically and others disaggregated outcomes by gender, there is not enough evidence to allow us to conclude on whether financial interventions targeted at women are more or less effective for them.
What are the implications?
We anticipate that users of this research will want to undertake a process of interpretation and application of the results of this review. However, on the basis of our findings we highlight in our report a number of implications for policy, practice and research that are summarised below:
As with all credit products, there is a need for caution given the potential for both good and harm to clients. In particular, because micro-credit makes some people poorer and not richer, there is an imperative to be particularly cautious when targeting the poorest of the poor. There is less risk if services are targeted at those who already have some financial security, such as savings (often integrated into micro-credit programmes) or another source of income, which will allow them to make loan repayments even if their businesses do not generate a profit immediately.
Micro-credit benefits some clients and the potential for increasing income and reducing poverty for some should be carefully balanced with the possible risk to others. Micro-savings appears to be a more promising intervention for clients, and might potentially be extended to the poorest of the poor as it has limited scope for harm. Savings services, without linked credit, should therefore be made more widely available for the poor. Micro-savings using commitment accounts is a particularly promising intervention for clients.
Rigorous evaluation of pilot programmes is required prior to roll-out in order to minimise the risks of doing harm.
There is, as yet, a lack of evidence about whether interventions that target women benefit them more than those that do not specifically target women. While care should therefore be taken to avoid excluding women from financial interventions, extra effort to focus micro-credit and micro-savings exclusively on women as opposed to including them in mainstream interventions is not warranted by the evidence base.
Rather than establishing conclusively whether or not microfinance reduces poverty, we anticipate the value of future research will be in identifying how, and in what circumstances, these financial inclusion interventions can work for the poor. More research is also required which explores different models of microfinance in order to provide more valuable informative evidence to guide decisions around which models are funded and implemented in which circumstances.
How did we get these results?
In order to assess whether micro-credit, micro-savings and/or micro-leasing are effective financial inclusion interventions, we rigorously and thoroughly reviewed the evidence. Having searched worldwide for relevant evidence, this was filtered to include the most relevant and best quality studies.
This material has been funded by the Department for International Development. The views expressed do not necessarily reflect the views of the Department for International Development.
This report should be cited as:
Stewart R, van Rooyen C, Korth M, Chereni A, Rebelo Da Silva N, de Wet T (2012) Do micro-credit, micro-savings and micro-leasing serve as effective financial inclusion interventions enabling poor people, and especially women, to engage in meaningful economic opportunities in low- and middle-income countries? A systematic review of the evidence. London: EPPI Centre, Social Science Research Unit, Institute of Education, University of London.