Empirical research on the impact of microfinance (specifically
micro-credit and micro-savings) on poor people in sub-Saharan Africa was
reviewed. This include evaluations of microfinance programmes within Ethiopia, Ghana, Kenya, Madagascar, Malawi, Rwanda, South Africa, Tanzania (Zanzibar), Uganda and Zimbabwe, and include both rural and urban initiatives.
The main conclusions of the review are as follows:
1. Some people are made poorer, and not richer, by microfinance,
particularly micro-credit clients. This seems to be because: they
consume more instead of investing in their futures; their businesses
fail to produce enough profit to pay high interest rates; their
investment in other longer-term aspects of their futures is not
sufficient to give a return on their investment; and because the context
in which microfinance clients live is by definition fragile.
2. There is some evidence that microfinance enables poor people to be
better placed to deal with shocks, but this is not universal.
3. The emphasis on reaching the 'poorest of the poor' may be flawed.
There may be a need to focus more specifically on providing loans to
entrepreneurs, rather than treating everyone as a potential
4. Micro-savings may be a better model than microcredit, both
theoretically (because it does not require an increase in income to pay
high interest rates and so implications of failure are not so high) and
based on the currently available evidence. However, the evidence on
micro-savings is small and further rigorous evaluation is needed.
5. The rhetoric around microfinance is problematic and damaging.
‘Clients’ could also be called ‘borrowers’ or ‘savers’, and
‘micro-credit’ might just as well be called ‘micro-loans’ or even
‘micro-debt’. There is an obligation amongst donors and policy-makers
not to falsely raise expectations with development aid in this way. The
apparent failure of microfinance institutions and donors to engage with
evidence of effectiveness perpetuates the problems by building
expectations and obscuring the potential for harm. A growing
microfinance industry may as easily be a cause for concern as one of
A number of recommendations for policy, practice and research are made.
There is a protocol for this systematic review
EPPI-Centre, Social Science Research Unit, University of London, London, UK, ISBN 978-1-907345-04-3, 100 pp.