Majority Of 18,000 Microfinance Borrowers Say Their Loans Boosted Their Quality Of Life

Microfinance loans improve borrowers’ overall quality of life. And, paying back that money hasn’t been a particular burden.

Those are some of the findings from research conducted for the 2021-2022 60 Decibels Microfinance Index, aimed at assessing the effectiveness of microfinance practices—by talking to customers. Based on interviews with around 18,000 microfinance clients of 72 microfinance institutions (MFIs) in 41 countries, the research measured outcomes in five areas: access, business impact, household impact, financial management and resilience. The goal: to form benchmarks based on those outcomes, the better to assess performance among different MFIs.

“You can look at areas like policies and procedures and the number of clients reached, but that is far less effective than talking to clients all over the world about what they think is working and not working,” says Sasha Dichter, CEO of 60 Decibels, an impact measurement company.

Quality of Life and Repayment

Most notably, the research found that clients report a significant improvement in their standard of living. Some 88% of borrowers agree their quality of life improved and a sizeable number—34%—say their quality of life is “very much improved.” And 73% report experiencing increased household income.

In addition, the results indicate that clients were better able to deal with economic shocks, clearly an urgent matter in light of the pandemic’s impact on livelihoods. “A huge proportion of clients are reporting more economic resilience,” says Dichter.

What’s more, while critics of the approach tend to point to the potential for loan repayments to be an insurmountable burden, the report found that 3 in 4 clients say their repayments are “not a problem.” Even more women than men describe their repayments as “not a problem” (73% of women vs. 67% of men). Also, perhaps as a result of MFI’s client education efforts, 7 in 10 say they “strongly agree” that they understand their loan’s terms and conditions.

At the same time, the report finds that 6% of borrowers characterize their payments as a “heavy burden.” According to Dichter, the survey didn’t find particular characteristics shared by borrowers who have struggled to pay back their loans. But, “With a more vulnerable population, it’s not a surprise that some folks would have that experience,” says Dichter. “The question is how big that group is and what steps the industry is taking to address this.”

Other Findings

Some other noteworthy findings:

• One-quarter of clients pointed to their success in investing in or growing their business as the reason for the improvement in their quality of life. They cited that explanation more frequently than the ability to pay for household expenses or a more general rise in income.
• Microfinance is reaching people without access to financial services. Over half of borrowers are getting access to a loan for the first time. That’s especially true for women and lower-income clients.
• The group lending model continues to be effective. MFIs that are primarily group lenders have better success at working with poorer clients. They’re also more likely to tap women and to have clients who are first time microfinance borrowers.
• The top MFIs are in sub-Saharan Africa. Although organizations in that region comprise less than half of the MFIs surveyed, they comprise all top 10 organizations in the index.