How best to help the world’s poorest people escape from poverty is being reappraised thanks to findings from the widest-ever review of evidence on the impact of financial services conducted by IDS and the University of East Anglia (UEA).
Microfinance and microenterprise interventions have been a cornerstone of financial development programming for 30 years, attracting billions of dollars from large global donors. These small-scale loans chiefly target women and the poorest people, who are disproportionately affected by socioeconomic inequalities and crises – as the Covid-19 pandemic has starkly illustrated.
Yet, after decades of substantial investment, there is scant evidence that microfinance interventions have had a lasting impact on poverty alleviation and wellbeing for the people concerned, as the IDS-UEA review showed. The findings of the review have fed into a major US Government reappraisal of policy on microfinance and have informed investigations by journalists into the adverse effects of such interventions.
The IDS-UEA research has contributed to an important shift in donor policy. This moves the emphasis away from supporting women to work their way out of poverty via microenterprise loans and instead reconsiders the role of social services that provide long-lasting support and enable vulnerable people to break the poverty cycle. IDS researchers (including those from the IDS-led Centre for Social Protection), and long-term partners BRAC, have advocated for alternatives such as the Graduation approach for decades.
Innovations in research synthesis
In a ground-breaking approach, IDS and UEA researchers linked theory to evidence on financial inclusion from around the world, creating the first review of reviews ever to be completed in international development. This meta-study, which took nearly three years to complete, represents a methodological innovation in research synthesis and is emblematic of the mixed-methods research that IDS has established.
By interrogating both qualitative and quantitative evidence, and examining the theory of change behind various financial inclusion interventions, the IDS and UEA researchers drew together the widest-ever pool of impact evidence on financial services for the poor.
Their work, and the communications activities related to it, has opened up the scope for reviews of this type in other areas – such as livelihoods approaches or poverty graduation models. The methodological lessons from this pioneering study can be applied by other researchers who will adopt or develop the meta-reviewing method further.
Sharing knowledge and building capacity
The IDS-UEA study launched at an event in April 2019 to a packed audience at the London School of Hygiene and Tropical Medicine (LSHTM), organised by the project funders 3ie (International Initiative for Impact Evaluation). Interest has since come from wide range of development professionals and media, including members of the European Research Conference on Microfinance, the German Institute for Economic Research (DIW), the ISEAS/ Yusof Shafak Institute in Singapore and several UK business schools.
The global poverty research partnership CGIAR published an Evidence Explainer about the IDS-UEA research on the CGIAR GENDER resource hub in September 2021. In spring 2022, a paper in The Lancet on child and adolescent health and development referenced the research.
The researchers also provided evidence to Bloomberg journalists who undertook a multi-country investigation resulting in a series of exposé articles in May 2022 on the darker sides of microfinance, including the potential for poorly protected borrowers to be exploited.
The research is also contributing to building capacity, with its mixed methods concepts shared with cadres of professional development learners as part of IDS short courses on impact evaluation. The research was enabled through established links with researchers at the Centre for Development Impact, an initiative in which IDS, UEA and Itad are core partners.
