Take Action: Microfinance

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  • Microfinance is the practice of providing loans and other financial services (such as savings accounts or insurance) to poor individuals.
  • Assessing the impact of microfinance charities is difficult, partly because microfinance is commonly portrayed in misleading ways.
  • We would guess that microfinance as a whole has done a great deal of good, but has also probably done some harm.

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Source: GiveWell

According to the World Bank 2008 report, almost half of the world's population—over 3 billion people—live on less than $2.50 a day. The poorest 40 percent of the world’s population accounts for 5 percent of global income, while the richest 20 percent accounts for three-quarters of world income (Human Development Report 2007). Microfinance offers those who were previously considered "un-bankable," because of their lack of collateral, an opportunity to expand their businesses, increase their incomes, and transform their lives.

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Source: Philanthropedia

Commitment Savings
Individuals engage in bad habits or are in unfavorable positions, and haven’t been able to commit to change. Targeted savings products help individuals save money while changing their situation through voluntary commitment.

Reminders to Save
Research over the last decade has shown that while the poor do have disposable income, they don’t save as much as they could. Simple reminders have been proven to be a cheap and effective way to get savings back on the top of the mind.

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Source: Innovations for Poverty Action

 

Microfinance institutions offer loans to poor clients, with interest rates that vary widely but are frequently considerably higher than the rates paid by borrowers in developed countries.

Some institutions also offer savings and insurance services.

U.S. microfinance charities often do not directly run these programs, but instead seek out partners and provide them with consulting and technical assistance.

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Source: GiveWell

Microfinance nonprofit institutions might be doing work at the international level (by country) or in very specific localities. The focus of this cause is at the international level. These organizations could focus on a variety of different activities such as being loan providers, information research organizations, online platforms, consulting practices, and so on.

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Source: Philanthropedia

  1. Set up commitment accounts to restrict access to savings.
  2. Tie access to savings to giving up a bad habit (such as smoking)in addition to helping the participants save more.
  3. Help participants set up a savings account, with a specific goal and a term established as part of the account. Text message are sent to the client to remind him or her to make a deposit to the account.

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Source: Innovations for Poverty Action


  • U.S. charities often do not directly run microfinance programs. Donors should seek to understand what services they do provide partners and what evidence there is that these services are valuable.
  • Repayment rates and interest rates can be reported in many different ways. Donors should make sure they are clear on the specifics of how much interest microlending programs charge and how they are reporting their repayment rates.
  • Donors should ask whether data are available on whether clients are benefiting from (not just repaying) loans. One common approach to this question is to report dropout rates, along with reasons for dropping out. Organizations that cannot provide this information may be more focused on reaching as many people as possible than they are on making sure their clients are benefiting.
  • Some programs reach much poorer clients than others. Donors should ask for concrete information about the poverty level of clients served.
  • Donors should consider funding the creation of savings programs, which have significant support among scholars in this area.
  • Some microfinance charities encourage donors to focus on the individuals receiving "their" loans. However, ultimately the institutions that receive support have significant discretion over what to do with it. Donors should focus on funding strong institutions.

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Source: GiveWell

In 2009, in order to find out which nonprofits were making the biggest difference, or impact, on microfinance at the international level, we ran our research surveying 131 international microfinance experts (with an average of 10 years of work experience in the field).

Source: Philanthropedia

Commitment Savings
Apart from an increase in savings, the commitment features also have positive impacts on female decision-making power. The commitment accounts tied with quitting a bad habit proved to be cost-effective and could be quantified based on estimates of increased productivity and reduced health care costs, which complement the large benefits to former smokers from health improvements and increases in quality-adjusted years of life.

Reminders to Save
Savings can provide a worthy substitute for expensive loans among clients who have enough funds to finance their expenditures themselves. As such, incorporating reminders into products can be a really simple way to boost clients' savings.

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Source: Innovations for Poverty Action