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What is the impact of microfinance on the well-being of the poor and what are the conditions for making microfinance work for the poor in South Asia? A systematic review

What do we want to know?

The South Asian region has a set of heterogeneous economies with wide variations in per-capita incomes. The region has also witnessed the implementation of large-scale microfinance programmes over the last three decades. Given the heterogeneity in the interventions methods, implementation challenges, demographics and outcomes a rigorous review of research evidence on the impact of these microfinance programs in the South Asian context is required for policy advocacy. The aim of this systematic review is to synthesise the findings of quantitative research conducted on the benefits of microfinance intervention and to assess the impact of various interventions in terms of outcomes, target segments, direct/indirect effects, compare the effects with non-participants, and circumstances that make the intervention succeed or fail.    

Review objectives

The specific objectives of the proposed overview of systematic reviews are to assess: 

  • Type/s of interventions or their components that affect the well-being of the poor on particular outcomes
  • Direct and indirect, positive and negative, effects on the participants and non-participants
  • Distribution of effects across target segments and outcome
  • Context /circumstances enabling interventions success / failure

What did we find?

To assess the impact of microfinance from the available evidence, we examined a variety of indicators and classified them in terms of three possible outcomes: economic outcomes, social outcomes and empowerment of women. Meta-analysis results indicate that there is, overall, positive evidence on increase in income, education, women’s empowerment and employment; however, the effect seems to be small. Microfinance programmes may lead to an increase in participants’ asset creation and consumption/expenditure. Another impact is noticed on education outcome, in terms of higher school-enrolment rates, although this is more pronounced for girls’ education. Even though there exist multiple indicators for measuring women’s empowerment, empowerment measured by the decision-making power of women indicates a small, but positive and significant effect.

The narrative synthesis suggests that microcredit/microfinance has positive impacts on the household incomes of poor people. Participation in microfinance has led to the dampening of seasonal variations in the context of agricultural incomes. Increased consumption is found in the case of participants, due to asset creation. Micro-savings for women has a significant impact on their individual expenditure in the context of Bangladesh. Although there is a positive impact on overall expenditure, there is no significant difference between participants and non-participants for food consumption. Evidence on the impact on education is varied. In terms of employment generation, there exists little evidence of a quantum increase in employment at village level. The impact on poverty reduction has been one of the most debated issues in terms of the outcomes of microfinance interventions. Evidence from Bangladesh-based studies indicates mixed results, ranging from minimal impact on reduction of poverty to significant impacts, especially for female participants. The contrary view suggests that the impact on poverty needs to be assessed by classifying the poor, as the poor do not form a homogeneous category.

What are the implications?

Microfinance programmes emphasising microenterprise-linked initiatives should be the focus of interventions leading to sustained income generation and diversification. Benefit accrued in terms of savings in interest cost due to microfinance borrowing does not necessarily lead to sustained benefits. Microfinance interventions, which are standalone lending models, have to be re-oriented incorporating credit-plus programmes, which would have components of training, exposure and mentoring, in addition to micro-savings and/or microcredit, leading either to employment or group enterprise, or asset creation for sustained benefits. As a vulnerable mitigation strategy, income- and consumption-smoothing initiatives need to be built into the interventions by an appropriate mix of activities, to be undertaken by the participants, in conjunction with discouraging consumption of temptation goods. Gender-based targeting in terms of credit disbursement may be a useful vehicle for enhancing the bargaining position of women within the household, especially regarding decisions on expenditure on education. A high-quality database with descriptions of the contextual settings of intervention methods employed for collecting data and reporting impacts would help in producing higher-quality evidence on impacts.

How did we get these results?

Sixty four studies were included for the overall systematic review. Twenty six studies were used for conducting meta-analysis and forty three were used for narrative synthesis. There were twenty one studies which were common for Meta-analysis and narrative synthesis. We used both electronic database search on Springer link, Science direct, EBSCO, Emerald, Wiley online library, ProQuest, JSTOR, SSRN, Taylor and Francis, Web of Science and PubMed as well as hand search of key journals, author correspondences and website searches. In addition the Cochrane Library and the Campbell Collaboration Library were reviewed. We also searched existing systematic reviews to ensure that all the studies included in the earlier systematic reviews in similar domains are identified and examined for inclusion. The identified studies went through a series of inclusion and exclusion criteria for being included in the synthesis.  Data were extracted from the included studies and synthesised using meta-analysis as well as narratively. Risk of bias assessment was used to evaluate the quality of the included studies. These outcome data for included studies were collected, along with information on sub-groups such as country, effect size, research design and types of intervention for synthesis. 

This review should be cited as: Gopalaswamy AK, Babu MS, Dash U (2016) Systematic review of quantitative evidence on the impact of microfinance on the poor in South Asia. London: EPPI-Centre, Social Science Research Unit, UCL Institute of Education, University College London. 

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