Microfinance providers care about the impact of their products and services on their customers. It is in the DNA of these providers to contribute to improving the lives of the people, and the health of the enterprises they serve. It also makes commercial sense because customers who benefit from products are more likely to continue using them.

CGAP is working to shed more light on what impacts can be expected from different financial products and in what circumstances

But how can we be sure financial products and services are actually having a positive impact and in what circumstances? How do we know what types of impact are more likely than others? These are questions that the microfinance sector has been grappling with since its origins in the 1980s.

We are all familiar with real-life stories captured by microfinance providers. Stories about how credit enabled a micro-enterprise to invest in expansion, thereby providing jobs to local people. Or how a digital payment service enabled a woman to have control over remittances or social protection payments meant for her and her dependents. These stories have often been carefully gathered with rich detail that leaves no doubt about the veracity of the impact in such cases. Unfortunately, these case studies are very difficult to gather at scale, so there are questions about how representative they are and how useful for steering the impact strategies of microfinance providers and organizations that invest in them.

Apart from case studies, the majority of microfinance providers and investors only collect data at the level of access: how many and what types of people are using their financial services. This is valuable information, but it does not tell us much about how the customers are benefiting. Of course, we can reasonably infer that if people are regularly using transaction accounts, regularly saving, repaying loans on time, or renewing insurance, they are experiencing some kind of benefit. But in what way, and how much, we can’t easily tell.

There are of course other tools that are available. For researching large groups of customers, the most common tool is the customer survey. This has tended to be used mainly to assess customer needs and potential, but it is also used by some providers to track customers over time to assess how use of their products and services have affected them. These surveys are not cheap and require considerable expertise. Some providers and investors outsource these surveys to specialist companies; but a few, like BBVA Microfinance Foundation, have built the capacity to conduct and analyse these surveys themselves.

Another challenge with these surveys is isolating changes experienced by customers that on the one hand resulted from use of the financial products, from on the other hand those that may have happened anyway. Researchers have tried to get round this challenge by also tracking what has happened to comparison groups – similar people or enterprises who have not used the financial products. These studies have multiplied in recent years and have advanced our understanding of the potential impacts of different financial products. But they have limitations. They generally do not tell us how impact differs among different sub-groups of customers. They are also difficult to generalise beyond the contexts in which they were conducted. Finally, of course, they are expensive and require considerable expertise to conduct.

CGAP, a global partnership of development organizations housed at the World Bank, is working to shed more light on what impacts can be expected from different financial products and in what circumstances. Rather than conducting more research, it is analysing hundreds of existing studies to identify trends in impact from different products and in different circumstances. The results will shortly be made freely available via an interactive platform. CGAP is also looking at the potential of new AI-enabled analytical techniques to make more use of customer data gathered by microfinance providers for identifying patterns that may point to impacts such as better financial resilience or enhanced ability to capture livelihood opportunities. Through its Financial Inclusion 2.0 initiative, CGAP is partnering with BBVA Microfinance Foundation and others in this endeavour.

Everyone with an interest in the microfinance sector – providers, funders, researchers and of course customers – stand to benefit from better evidence of impact. There are increasing amounts of data available. The main question is how to make sure the data can answer questions that really matter.

*Karina Broens Nielsen: Senior Financial Sector Specialist / CGAP

*Xavier Faz: Lead, Financial Services for Equality and Growth / CGAP