This paper seeks to identify the causal effects of expanded access to microcredit on borrowers and communities using six randomized evaluations. The evaluations are based on a variety of sampling, data collection, experimental design, and econometric strategies. The methods are deployed across urban and rural areas of six countries in four continents representing vast disparities in terms of borrower characteristics, loan characteristics, and lender characteristics. The paper finds a consistent pattern of modestly positive, but non-transformative effects of microcredit. Other highlights include:
- Studies do not find clear evidence, or even suggestive evidence, of reductions in poverty or substantial improvements in living standards;
- There is strong evidence suggesting that businesses expand, though the extent of expansion may be limited, and there are hints that profits increase with access to microcredit;
- Analysis shows that it is likely for access to microcredit to have an effect on occupational choice, business scale, consumption choice, female decision power, and improved risk management;
- There is little evidence of harmful effects of microcredit, even with individual lending at high real interest rates;
- Analysis of heterogeneous treatment effects of the studies suggest the possibility of transformative effects on some segments of microlenders’ target populations.
Beyond Codes was an action research project of the Center for Financial Inclusion at ACCION. The project was designed to provide a body of experience and knowledge from leading financial institutions serving low-income people about how consumer protection codes of conduct are implemented. The two-year project started in mid-2008 and ended in June 2010. The project aimed to develop the tools and experience that could inform the subsequent work in client protection by grounding it in practices of financial institutions.
Twelve financial institutions (FIs) participated in the project. FIs were of various ages, from less than three to more than ten years. The institutions included banks, non-deposit finance companies, NGOs, and credit unions. Some were large operations with close to one million clients, while others were medium-sized and even small, with fewer than 10,000 customers. The countries represented in the research were: Bosnia, India, Kenya, Mexico, and the Philippines. All the FIs engaged in lending including a range of loan products using various methodologies. More than half also offered savings, transaction accounts, and insurance.
AccessBank, Azerbaijan provides financial services for micro and small businesses and low- and middle income households (the average loan size is USD 2,900). It is one of the largest private banks in the country, and is the leading microfinance bank, with over one-third of the market share.
Adie, France offers micro credit and financial counseling services for micro entrepreneurs. Adie’s 27,500 clients consist of micro entrepreneurs from many walks of life, including youth, migrants, and the unemployed. Adie provides clients with business loans and business support during and after the creation of the client’s enterprise.
EKI Micro-credit Foundation, Bosnia and Herzegovina targets primarily low-income clients, women, and clients in rural or semi-urban areas. EKI has over 43,000 clients and an outstanding loan portfolio of over USD 80 million.
KazMicroFinance (KMF), Kazakhstan offers credit services in rural and urban areas. KMF serves over 34,000 active credit clients, offering them a range of loan products, including business and agricultural loans—50 percent of KMF’s clients live in rural areas.
The principle of transparent and responsible pricing rests on the assumption that clients are capable of making smart financial decisions when they have access to and understand all the necessary information.Transparent pricing goes beyond just stating an interest rate. Financial institutions are responsible for making sure that they communicate a product’s true total cost, along with its applicable terms and conditions,in a way that clients can understand, given educational and language considerations.
Responsible pricing means that the financial institution sets prices so that they are affordable for the consumer at the same time that they enable the financial institution to operate sustainably.
The Bosnian MFI Mi-Bospo focuses on client protection to safeguard both the institution and clients. For Mi-Bospo, transparency and responsible prices are key elements of ensuring client satisfaction. The MFI ensures transparency by screening potential hires,adhering to strict marketing guidelines, and taking time during the loan process to be sure that clients understand their rights and responsibilities.
In a vibrant and competitive microfinance sector,Partner Microcredit Foundation employs a multifaceted system to prevent, detect, and correct overindebtedness among its clients. Management views avoiding client over-indebtedness as an institutional responsibility and has built a robust system that functions throughout the lending process.
Partner was started by Mercy Corps in April 1997 as a non-profit organization with a long-term goal of establishing a micro credit company to eventually transform into a bank. As of 2009, the institution has 54,572 active loans in a nearly $100 million portfolio.