> Posted by the Microfinance CEO Working Group

The following post was originally published on the Microfinance CEO Working Group blog.

The American Economic Journal has published an issue dedicated to six new studies measuring the impact of microcredit. Through a series of randomized control trials (RCTs), researchers have identified some of the effects of expanded access to microcredit on borrowers and communities in Bosnia, Ethiopia, India, Mexico, Mongolia, and Morocco.

The researchers reported evidence of positive impacts of microcredit on occupational choice, business scale, consumption choice, female decision power, and improved risk management, but did not report clear evidence of reduction in poverty or substantial improvements in living standards. “These results,” conclude the authors, “suggest that although microcredit may not be transformative in the sense of lifting people or communities out of poverty, it does afford people more freedom in their choices… and the possibility of being self-reliant.”

As microfinance practitioners, we acknowledge and appreciate the importance of such research and study the data carefully. Such studies play an important role in helping to measure our efforts and guiding us in improving our practices. They lead us to examine our work carefully, refine our theories of change, and set expectations for how that change might occur. They lead us to cast a critical eye toward the products and services we develop.

Many microfinance institutions believe that microcredit, especially when combined with additional financial products like savings and insurance as well as non-financial services like health care, can have significant impacts on the lives of the poor and pursue such impacts as part of their organizational missions. These six studies do not address the impact of many other promising non-credit microfinance activities, although a number of other studies do. “MFIs now increasingly focus on savings, not just credit,” the authors note, “and the evidence from randomized evaluations of micro-savings is quite promising.”

Impact studies and their methodologies will continue to be debated both within and without the industry. Wise practitioners will use the data from RCTs, financial diaries, and traditional forms of market research to become more innovative, responsive, client-centered, and dedicated to developing high-quality products and services, especially products beyond microcredit.

Intuitively, the principles of microfinance make sense: better financial services facilitate economic activity, particularly where those services aren’t reliable or never existed. But, intuition alone isn’t enough, whether for individual donors, corporate foundations, government agencies or investors – indeed, for anyone who seeks to effect social change with their support. Data like these complement our intuition and compel us to maintain our commitment to upholding our organizations to the highest standards.

Have you read?

On the Pathway to Responsible Microfinance: An Update on the Microfinance CEO Working Group’s Progress

New Microfinance CEO Working Group Papers Examine Causes and Potential Remedies for Over-Indebtedness

Microfinance Does Health Care