Microfinance is respectably credited as one of the most sustainable and effective routes toward poverty reduction. More than 3,000 microfinance institutions (MFI) throughout the world are serving over 70 million low-income clients by providing access to basic financial services (loans, savings accounts, etc.). This seems an impressive number, however, it’s only a sliver of the over 4 billion potential microfinance customers at the bottom of the pyramid. Microfinance needs to expand and deepen its impact, so great impact assessments are crucial its growth.Worldwide, microfinance is applauded for not only its economic impact, but for its social impact. Most borrowers are women and when these women are able to become micro-entrepreneurs it has an amazing positive impact on their lives – a ripple effect ranging from feelings of empowerment, to more education for their children, to greater social connectedness.
Most MFIs attentively monitor their financial information to measure both institutional success and individual client economic progress. While dedicated to improving the social conditions of borrowers, most MFIs lack a viable systematic approach to fully understand and measure the impacts of their practices. MFIs neglect to incorporate tools into their impact assessments that can quantitatively measure the significant social and psychological benefits that financial access brings. Econometrics cannot explain why people of the same age with similar backgrounds, resources, and abilities experience different entrepreneurial success or express dissimilar proclivities to better their lives.
Currently, most psychological benefits, for example, an increase in borrower’s self-confidence, are limited to anecdotal vignettes. Although increases in borrower autonomy and empowerment may be visible and reliable results from a loan program, MFIs need quantitative data to systematically measure progress, delineate influential variables of success, improve outreach, and attract greater funding.
And this is where positive psychology so aptly steps in! Positive psychology has tools to evaluate the practices of sustainable and socially responsible businesses. The veritable measures of positive psychology can identify the various aspects of well-being that improve with an increase in income, and what impact the ‘loan intervention’ has on borrowers’ reported strengths and enterprise success. As the scale and scope of microfinance lending increases, I believe that MFIs aimed at poverty reduction must have a clearer picture of their impact and potential in order to maintain their social effectiveness.
I am working with one of the largest Arab MFIs to do an empirical evaluation that measures the longitudinal impact of microfinance services on borrowers in order to fully understand the influence and growth potential of microfinance through quantitative measures of well-being.
These are a few of the questions I will be addressing:
- In what ways and to what degree do micro loans increase borrower well-being?
- Do certain attributes or abilities, such as entrepreneurial qualities or self- discipline, promote timely loan repayment or enterprise success?
- Do those with higher subjective well-being (SWB) experience greater economic success?
- Do borrowers with lower SWB report greater psychological benefits from the loan intervention than those with higher SWB?
This research is just a fraction of the tip of the iceberg in terms of how positive psychology applies to microfinance, but I’m thrilled to be a part of it. All MFI actors – borrowers, program developers and administrators, investors/donors, consultants, and entrepreneurs – are concerned about the constant improvement and expansion of microfinance services. This research will show where microfinance is making its impact and what helps people benefit most from micro-loans. Better understanding the behavioral traits of borrowers and psychological impacts of loans has tremendous potential for the improving the development, delivery, and growth of microfinance.
I start this research in Jordan in the next few months, so if you’re interested in any more details of the research or have some ideas to share, I’d love to hear from you!