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  • ING report shows that the impact of microcredit can be very different depending on personal and geographical circumstances
  • Most successful results were generally experienced by the poorest of the poor, women with initial debt and those who received financial education

When developing microcredit programmes to empower the disadvantaged, there is no such thing as an ‘average client’. The ING report “A billion to gain”, compiled in collaboration with NpM, a platform for Inclusive Finance, highlights [or signals?] how the differences in income, initial indebtedness, financial training and the skills of group leaders can significantly impact the success of microfinance initiatives.

The report uses samples of female clients in India and Ghana that had received a loan or were still active borrowers, and then divides them based on income. The lowest poor group lives/is living on less than $1.25 a day per household member.

Microcredit programs focused at income, savings and empowerment most beneficial

In addition to the differences in the impact of microfinance programs that the report signals, the study also identifies some recurrent factors.

In both samples, the lower poor group tends to benefit most from microcredit programs in terms of income and savings, as well as empowerment. It turns out that getting access to financial tools to manage money works extremely well for people who have very little money to manage in the first place as for them the financial stress to get from one day to the other is so pressing.

Impact of microcredit projects higher for women with initial debt

The report also reveals that women who already have debt outstanding when they receive their first microfinance loan show a significantly higher income effect than women who are not indebted (both India and Ghana). The reasons might be different : it could be that these women pay off expensive informal loans with cheaper microcredit which has a positive impact on income. It could also be that – combined with previous loans – these clients have more money available to invest productively.

Opportunities for new business models

Financial literacy training, including basic bookkeeping and budgeting techniques, is not only a powerful tool to increase positive impact, but given the cost of training (ranging from $2-4 per client), it allows for new business models upon which microfinance can be built. If clients are able to use their increased income to partly cover training costs, there are greater incentives for MFIs not to cut back on training costs – an issue that is common when firms face financial strain.

“We saw a need for a greater understanding of how impact of microfinance differs among clients” said Gerben Hieminga, senior economist at ING responsible for the “A billion to gain” report. “So when taking a deeper look at the data, we saw that the differences in local context become even more important and that each country should be treated as a separate case study. However, across both countries, we observed that microfinance had the greatest impact on income and savings for the poorest customers and that access to financial tools works extremely well for those with little money to manage in the first place, as it relieves some of the financial stress that comes from one day to the other.”