Improved effectiveness and impact of an international microfinance programmeWed 13th Sep 2023
Institution: University of Portsmouth, Faculty of Business and Law
Authors: Joe Cox, Joana Silva Afonso, Salem Chakhar, Liz Ford, Alessio Ishizaka, Wolfgang Luhan, Thang Nguyen and Andy Thorpe
Impact: Boosting loans to low-income entrepreneurs in developing countries
Background and purpose
Microfinance is a well-established development instrument that provides financial services and training to low-income populations to help them to lift themselves out of poverty. Lendwithcare (LWC) is a microfinance platform created in 2010 by CARE International UK, a leading international development NGO working in over 100 countries. The platform uses crowdfunding to raise larger sums of money via small contributions aggregated from a crowd of lenders. These funds are then loaned to borrowers across eleven developing countries, with the aid of local microfinance institutions (MFIs). The University of Portsmouth has been involved in an ongoing collaboration with CARE International UK and LWC since 2014. The aims of the collaboration are to undertake a comprehensive evaluation of both sides of LWC’s microfinance programme via two strands of research, respectively focused on their communities of borrowers and lenders.
Two research strands
The first strand of research examined the extent to which borrowers had seen visible improvements in their wellbeing as a result of their loans. Three LWC MFI partners with differing size portfolios were selected; Akhuwat Islamic Microfinance (AIM) in Pakistan (813,525 borrowers), Fundación FACES in Ecuador (19,978 borrowers) and Thrive in Zimbabwe (3,384 borrowers). The research involved the completion of three waves of household surveys in Pakistan, two household surveys in Zimbabwe, and a baseline survey in Ecuador.
In each instance, the surveys disclosed a wide heterogeneity in the MFI client base. In the case of Pakistan, the longitudinal analysis found that poverty levels reduced among AIM borrowers compared with a control group who had not received loans. This work was complemented by case study research which delved more deeply into the simple, yet innovative, approach based on a practical and financially sustainable operating model that had enabled AIM to become the largest non-bank Islamic micro-finance provider in the world. The first strand of research also highlighted a sharp divide in the impact of loan provision between rural and urban borrowers in Ecuador, and the important challenges posed by the economic and cash crisis to both clients and MFIs in Zimbabwe.
The identification and exploration of these differences allowed the institutions to improve their knowledge of their clients and re-evaluate their targeting criteria. These changes impacted upon social welfare through enhanced social inclusion in Ecuador via rebalancing the loan portfolio in favour of more marginalised groups; service change in Pakistan via streamlined loan selection processes for existing borrowers; and improved service provision to marginalised women in Zimbabwe via refined loan supervision processes and client training procedures.
The second strand of research switched focus to understanding the preferences and behaviours of LWCs community of lenders. Lender profiles are displayed on the LWC platform, and a link is provided to all the projects they have funded (a photo and lender descriptor are optional). The research disclosed that lenders who took advantage of the opportunity to add personal details to their profiles were more likely to make a larger number of smaller value loans than those who did not, whereas anonymous funders tended to contribute smaller numbers of higher value loans. The research concluded that LWC should consider the role played by self-presentation and increase levels of visibility in the donation process by making public profiles a more prominent feature on their website.
The second strand of research also produced evidence on the types of projects lenders tend to favour by investigating how funding pitches from borrowers are presented on the platform and how it impacts upon lender decisions. The study found that the most attractive attribute to lenders was the type of activity undertaken by the borrower. Farming projects and food stalls tend to be preferred, followed by sewing/tailoring enterprises and then ‘green’ loans. The gender of the borrower and the loan size requested were also important determinants of lending patterns, while the country of the borrower, their age and their number of dependents exerted only a moderate influence.
Benefits and impact
Altogether, the findings on the behaviour of lenders and the impact of loans on borrowers were utilised by LWC in completing a major re-design of their online platform. These changes have played a significant role in growing the number of active LWC lenders from 20,794 (2014) to 66,002 (2021), as well as growth in investor portfolio from £5.5m to over £31.5m over the same period. As a consequence of this expansion, more than 120,000 new loans have been made to low-income entrepreneurs in developing countries.