The goal of microfinance institutions is to affect social change through providing small business loans to those who wouldn’t otherwise qualify. The thinking behind this movement, which has been pursued for over 30 years now (and one that I am extremely passionate about), is that helping women and the poor start businesses will in turn improve economies in low-income neighborhoods. It’s also believed it will assist the overall community of a city defeat social barriers. Recent studies have found that microfinance endeavors aren’t affecting communities as deeply as had been hoped, largely due to the lack of funding and int turn lack of reach as well as the stigmas associated with it.
Two studies on the effectiveness of microfinance have recently been conducted and each study reported using a random sampling of participants subjected to strictly controlled conditions. Each study independently reported that microfinance loans did help business owners boost their profits and grow their businesses, but that was the limit of the benefits to these types of programs.
Still, many involved in microfinance like myself find reasons to object to the findings. Specifically, because we the proponents of microfinance know these programs work, because we have seen them in action. Over the past three decades, microfinance loans have infused low-income communities with funding that has ultimately served to stimulate the economy. They suggest that the researchers would be better served to take a closer look at how these neighborhoods have evolved.
Of course there are pros to these new studies. In spite of the criticism, the latest studies have been even more dedicated to conducting an unbiased study. Unlike previous research, these two studies have looked at individuals who qualified for the microfinance and compared them against those who didn’t receive funding. By looking at these factors, it can be better determined just how microfinance loans are helping the disadvantaged.
More research is needed to fully understand the social impact of microfinance loans in impoverished communities. By discovering more about the benefits of funding, better ways of helping women and the poor may be found. Researchers would like to launch new studies every decade or so to measure just how lives have been affected by microfinance loans. By conducting regular research, it’s believed that a better understanding of the social impact of microfinance can be achieved and in turn more dramatic and effective results. That type of ongoing project will provide an opportunity to learn that wouldn’t otherwise be available.
About Aisha Babangida: Aisha Babangida lives in Nigeria where she works to better the African Community, specifically the lives of rural women and children. She believes in the power of education and financial inclusion as exhibited by her work with the Better Life Program and the Egwafin Microfinance Bank. You can hear more from Aisha on her blog.