Benchmarking Microfinance – Development Policy Center Devpolicy Blog

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Over the past few years, we have seen a particularly grim narrative around our efforts to end global poverty. The severe impacts of climate change, the lingering effects of an unprecedented pandemic and a looming food insecurity crisis: all of this suggests that the challenges we face in achieving the United Nations Sustainable Development Goals (SDGs) set in 2015 is more formidable than ever.

Global economic and political challenges mean that resources to support anti-poverty programs are limited. It is clear that – as we pass halfway through 2030 – if we are to achieve the SDGs, we need to allocate these resources as efficiently and effectively as possible.

Now more than ever, there is an urgent need to understand which solutions are most effective in helping vulnerable people, in order to channel funding where it will have the greatest impact on poverty and inequality. However, one of the oldest problems in international development is the difficulty of comparing the results of different programs.

As one of the largest and fastest growing development sectors, microfinance is a good example of this problem. Over the past five decades, microfinance institutions (MFIs) have sprung up in the Global South to provide financial services to previously unserved low-income, remote and rural households. The sector now serves over 140 million households, and access to finance can be transformative, enabling microfinance clients to start or grow small businesses, cover medical costs or pay school fees for children. . However, research also shows that client outcomes are highly dependent on many different “performance” factors for providers, such as the care with which clients are selected, the quality of staff training, and the efficiency with which institution trains clients.

As with any other area of ​​development work, we could get more for our development money if we could identify the best performing institutions and redirect our limited funding to those providers. But these efforts have so far been stifled by a lack of good quality, comparable and comprehensive data.

A new initiative aims to change that. The Microfinance index 60 decibels was launched earlier this year to provide comparable performance data across the microfinance industry.

60 Decibels uses a lean data collection approach. Expert interviewers interview a sample of clients by telephone to understand their experience with the MFI, for example, to what extent have they seen an increase in their income and savings, an improvement in their quality of life or an increase in their education expenses, essential health care costs or home improvements.

Using this approach, 60 Decibels surveyed a total of 18,000 microfinance clients across 72 MFIs in 41 countries in the first three months of 2022, completing data analysis and publication of results of their microfinance index in June. Each of the 72 participating MFIs received a report detailing the results for their sample of 200-250 clients on 18 key indicators, and how each of these results compares to regional and global benchmarks for the 72 MFIs. Institutions can identify where they are performing well and where they are performing below average, leading to actions to address specific challenges and gaps.

The international development networks participating in the initiative use these benchmarks to better direct investments. One of these networks is International opportunity, a global non-profit organization that has funded microfinance in developing countries for more than 40 years. Nine of Opportunity’s microfinance partners participated in the first year of the Microfinance Index, and the results were positive.

Opportunity partners have been found to be successful in reaching households that previously did not have access to finance; a majority of clients reported an improvement in their quality of life as a result of the microfinance services received; microfinance services have improved client resilience, increased savings balances, and improved clients’ ability to meet unexpected expenses; and clients generally reported few problems repaying their loans.

Perhaps more importantly, the results also showed a wide range of performance among Opportunity’s partners. For example, a much higher percentage of customers increased their savings in the best-case scenario, compared to the worst-performing partner. These variations allow Opportunity to reward top performers with additional funding and work with remaining partners to overcome challenges and help them improve their performance.

Based on the success of the Microfinance Index in its first year, 60 Decibels hopes to double the size of the survey in the second year, covering 150 MFIs that collectively serve 50 million clients, or approximately one third of the microfinance sector, and providing benchmark national results for the first time. 60 Decibels plans to take the same approach next with the energy sector, allowing institutions that connect remote and rural communities to the grid, or provide solar-powered lighting or clean cookstoves, to benchmark themselves against their peers.

This innovation in data collection, analysis and benchmarking is expected to lead to more effective allocation of development finance across all parts of the development sector. We could also expect an increase in overall funding for international development through greater confidence in results and the ability to ensure value for money in development spending.

As the challenges of achieving the SDGs look tougher than ever, this data-driven approach to understanding performance and allocating resources will be an important boost for more effective and impactful international development programs.

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Opportunity International partially funded the 60 Decibel Microfinance Index.

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