What do we want to know?
Microfinance has been upheld as a key development tool and, despite the deepening crisis within the industry in India, microfinance in sub-Saharan Africa continues to grow. We rigorously and systematically reviewed the evidence to identify the impacts of micro-credit and micro-savings on poor people in sub-Saharan Africa and tested a causal pathway to understand why these impacts occur.
What did we find?
We found that micro-credit and micro-savings make some people poorer and not richer. Clients save more, but also spend more. Health generally increases and, for some, access to food and nutrition. Impacts on education are varied with limited evidence for positive effects and considerable evidence that micro-credit may be doing harm, reducing the education of clients’ children. Micro-credit may empower some women, whilst both micro-credit and micro-savings improve clients’ housing. There is little available evidence about the impact on job creation or social cohesion.
Exploring the causal pathway for these impacts shows how clients’ failure to increase their income, determined by external factors as well as how clients spend their money, can lead clients into further debt, unable to invest in savings and reliant on further cycles of credit. Successful increases in income, repayment of loans and the accumulation of financial wealth are all feasible, but our analysis shows how these are not always achieved.
What are the implications?
Micro-savings may be a better model than micro-credit, both theoretically (because it does not require an increase in income to pay high interest rates and so implications of failure are not so high) and based on the currently available evidence. However, the evidence on micro-savings is small and further rigorous evaluation is needed.
In conclusion, micro-credit and micro-savings are doing harm, as well as good, to the lives of the poor whom they purport to serve. Cautious implementation and further rigourous evaluation are required if these interventions are to alleviate rather than deepen poverty.
Who conducted this review?
Ruth Stewart from the EPPI Centre led this review with additional input from Kelly Dickson. They worked closely with Carina van Rooyen, Thea de Wet and Mabolaeng Majoro from the University of Johannesburg.
This report should be cited as:
Stewart R, van Rooyen C, Dickson K, Majoro M, de Wet T. (2010) What is the impact of microfinance on poor people? A systematic review of evidence from sub-Saharan Africa. Technical report. London: EPPI Centre, Social Science Research Unit, University of London.
ISBN: 978-1-907345-04-3