Responsible Finance Forum

Microfinance for Decent Work: Enhancing the impact of microfinance

Various
04 February 2015

From 2008 to 2012 the International Labour Organization (ILO) collaborated with 16 microfinance institutions (MFI) to test a range of approaches to foster social impact through the delivery of innovative financial and non-financial services. Eliminating child labour, fostering the formalization of enterprises, reducing vulnerability and enhancing business performance through improved working conditions – these are decent work objectives that the MFIs addressed in the framework of the “Microfinance for Decent Work” (MF4DW) action research programme.

The programme was implemented in a three-step process. First, the selected MFIs conducted an internal diagnostic to identify the most pressing work-related challenges among their clients. Informed by these diagnostic results, the institutions developed an innovation to address the decent work deficit that most affected their clients, and started implementing the innovations in a pilot study. Lastly, the impact of these innovations on clients was tracked through a series of data collections.

From the diagnostic surveys, the analysis showed significant decent work deficits for microfinance clients in a number of areas. The issues that the MFIs chose to tackle can be grouped into four thematic clusters: a) vulnerability, particularly with regard to risk management and over-indebtedness (seven MFIs), b) enhancing business performance (four MFIs), c) reducing child labour (three MFIs), and d) promoting formalisation (two MFIs). The innovations that they implemented were specific for each MFI, with three MFIs launching a new financial service, nine introducing a non-financial service, four offering a package of financial and non-financial services, and one restructuring its operations.

The evaluation of the innovations’ impact was mainly conducted using the difference-in-differences (DiD) methodology, which compares changes before and after the implementation of the innovation in the control and treatment groups. The impact studies showed that all innovations did have effects on the target outcomes; however, not all with the same intensity and not always in the intended direction. One key message emerges: MFIs can achieve desired results if they identify an issue and then focus on helping clients to improve a specific area.