Assessing the Impact of Our Microfinance Services A study by Opportunity International and the Kellogg School of Management at Northwestern University, funded by the Caterpillar Foundation
Opportunity International provides access to savings, small business loans, insurance and training to over two million people working their way out of poverty in the developing world. Clients in more than 20 countries use these financial services to start or expand a business, provide for their families, create jobs for their neighbors and build a safety net for the future. For more information, visit opportunity.org.
The Kellogg School of Management at Northwestern University was founded in 1908 and is widely recognized as a global leader in management education. The school, located just outside of Chicago, is home to a renowned, research-based faculty and MBA students from around the globe. The Kellogg School’s academic portfolio includes the Full-Time, Part-Time and Executive MBA Programs, the Ph.D. Program, and the nondegree Executive Education Program. The school offers two joint-degree programs: the JD-MBA and the MMM (MBA-MEM). Additionally, the Kellogg School of Management offers an Executive MBA Program in Miami and has alliances with business schools in Europe, Asia, the Middle East and Canada. To learn more, visit kellogg.northwestern.edu.
The Caterpillar Foundation is the philanthropic arm of Caterpillar Inc., the world’s leading manufacturer of construction and mining equipment. Founded in 1952, the Caterpillar Foundation has contributed nearly $400 million to help make sustainable progress possible around the world by providing program support in the areas of environmental sustainability, access to education and basic human needs. More information is available at caterpillar.com/foundation.
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Executive Summary As a global microfinance organization serving more than two million people living in poverty, Opportunity International believes in the importance of investing in research to give voice to our clients, provide better service and measure the impact of our financial services on their lives. Over the last decade, Opportunity has conducted more than 50,000 face-to-face surveys with clients in Africa, Asia, Eastern Europe and Latin America. The research showed that our clients want savings as much as they want small business loans, and their input has aided us in the development of a wide array of financial tools—including agricultural finance and rural savings, crop and health insurance, and school fee loans and savings accounts—to help them work their way out of poverty. In 2010, with funding from the Caterpillar Foundation, Opportunity International invited the Kellogg School of Management at Northwestern University to conduct a study on the impact of our work. The purpose was to determine the effect of Opportunity loans, training and relationship building on a client’s business performance, financial standing, standard of living and overall quality of life. Results showed that clients were more
likely to report improvement in the growth of their businesses and in their ability to provide for their families over the last 12 months than similar entrepreneurs who have never borrowed from a formal financial institution.
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Executive Summary continued...
The bar graphs show the percentage of each group that reported improvement (much higher or higher/much better or better) compared to 12 months ago. Not only did clients report better results in all areas where microfinance could be expected to have the most direct impact, but the differences were statistically significant. The largest differences were seen in variables which are more within the control of the respondents and depend on their businesses. For example, approximately 75% of clients reported improvement in sales income, net income, number of customers and amount of assets, with the comparison group reporting improvement only half the time. Clients also reported improvement 20% more of the time than the comparison group in the amount saved and the ability to pay suppliers. Reported differences in improvement in the variables which depend on government programs or major infrastructure improvements, such as electricity, clean water and health clinics, were not only small but statistically insignificant. This suggests that clients thoughtfully answered each survey question, instead of responding that life improved in every regard simply because they had received a loan. When absolute values were measured in the survey, each of the business performance indicators—average weekly sales income, net income, family expenditures, and savings—was higher for the client group than for the comparison group. This suggests that Opportunity clients earn
more, spend more on their families, and also save more than their peers who have never received a loan from a microfinance organization.
quality of life Reported improvement (much higher or higher) compared to 12 months ago
89%
89% of clients reported higher or much higher quality of life
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business benchmarks Reported improvement (much higher or higher) compared to 12 months ago
sales income number of customers ability to pay suppliers Clients Comparison
number of employees
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
net income & assets Reported improvement (much higher or higher) compared to 12 months ago
net income
Clients Comparison
assets 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
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Executive Summary continued...
It is also important to note that client responses were consistent with reported values from previous surveys conducted with a separate set of Opportunity Malawi clients. For example, a Client Development Survey in July 2009 found that 81% reported higher sales income, 81% higher net income, and 95% higher overall quality of life. With 78%, 72% and 89% of clients reporting improvement in these respective areas, this year’s survey falls in line with previous research. These positive outcomes affect not only clients, but also their families and communities. With an average of 2.8 school-age children (compared with 1.9 in the comparison group), 19% more clients than non-clients reported that their children’s education had improved, while 9% more clients than non-clients reported an increase in spending on their families. Our
clients’ increased expenditures and savings (which Opportunity loans out to other entrepreneurs) help fuel their neighbors’ businesses, contributing to the economic development of their communities and their countries.
savings & family spending Reported improvement (much higher or higher) compared to 12 months ago
savings
Clients Comparison
family spending 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
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family well-being Reported improvement (much better or better) compared to 12 months ago
home comfort children’s education family health
Clients Comparison
meals 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
“There is no disputing the evidence that Opportunity Malawi clients are more likely than non-clients to report that life is improving in a variety of measures. This is great news for Opportunity International, suggesting that its clients are thriving relative to a similar peer group. While there is a possibility that clients overstated their perceptions of change and their incomes, it feels unlikely that the measured differences can be fully attributed to this tendency.�
Kathleen Odell, Assistant Professor of Economics, Brennan School of Business, Dominican University.
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Methodology In this study, an MBA graduate student at the Kellogg School of Management at Northwestern University analyzed 907 surveys, including 458 client surveys and 449 comparison group respondents. The survey tested specifically for client impact and included a comparison group of entrepreneurs not receiving loans from any formal financial institution. A team of 10 independent, native Malawians who are bilingual administered the surveys to clients from Malawi’s northern and southern regions. Client names provided by Opportunity Malawi’s main office were filtered for those who had been borrowing for at least two years, since we would expect it to take a number of loan cycles to see significant improvement in our clients’ businesses and lives. From this group, names of individuals and Trust Groups were randomly selected for surveying. For Trust Groups, survey administrators asked leaders for a representative sample of well-performing, poor-performing and average clients. Members of the comparison group were selected in one of two ways. Client respondents were asked for the names of other microentrepreneurs of the same economic level, in the same village or urban area, and perhaps in the same industry—but who had never borrowed from a formal financial institution. Survey administrators also sought out other non-borrowing entrepreneurs of similar economic status as the clients being interviewed in that particular area. The study controlled for observable differences between clients and non-clients, such as current income, age, gender, industry type, business age and education, that might have otherwise explained the differences in reported outcomes.
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The same survey was used with both the client and comparison groups and all survey responses were self-reported. All interviews were conducted individually and without the presence of either Opportunity Malawi staff or Trust Group leader. An equal number of clients and comparison respondents were interviewed in each location. The key variables all focused on change aspects in the respondents’ lives. For example, researchers asked if their net income was much worse, worse, the same, better, or much better compared to 12 months ago. Researchers then performed three types of data analysis, beginning with a preliminary analysis that compared the percentages of surveyed clients and non-clients who report improvements in their lives. This provided the initial directional result that in each category, more clients report improvements than nonclients. Secondly, a Logit regression analysis was used to explain changes in life improvement while controlling for differences among the client and non-client groups. Being a client was strongly correlated
with improvement in all categories of business and most categories of life, even while controlling for variables such as business age, gender and income.
Finally, a linear regression analysis was performed on the absolute values of reported sales and earnings to test whether clients were better off than the control group, all other things being equal. The variable of being a client had a large and statistically significant effect of 41% more sales income and 32% more net income. The researchers took steps in both the survey methodology and the data analysis to control for observable differences that could affect success including age, gender, education, income, business type and business age, though there is still the possibility of bias in the results from unobservable characteristics such as ambition or innate business aptitude. The researchers recognize that this study does not mimic the results of a randomized control study (which would not have been possible within the context of ongoing client treatment), but regardless believe the results are both instructive and important.
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Ongoing Analysis and Future Work The Opportunity International/Kellogg study should be seen as one piece in a growing body of research that explores how microfinance affects the lives of people living in poverty. In 2010, Dominican University researcher Kathleen Odell, who also reviewed this study, released a report that took a fresh look at recent studies on microfinance’s effectiveness in alleviating poverty. She noted new research that suggests that microfinance “plays an important role in helping poor people mitigate the unreliability of their income.”1 Opportunity also recently collaborated in a randomized controlled trial by Lasse Brune, Jessica Goldberg and Dean Yang from the University of Michigan, and Xavier Gine from the World Bank. Preliminary results showed that giving farmers individual savings accounts and the ability to commit their funds until harvest time can make a major difference in the amounts they save and invest in their farms, increase their harvest profits, and even lift their future consumption levels.2 In 2011, Opportunity will continue its extensive financial diary work with clients. In addition, as part of the Kellogg study, researchers began investigating how microfinance loans might cause “spillover” effects on communities. While basic analysis and anecdotal remarks showed that non-clients may benefit from contact with an Opportunity client in their neighborhood, this merits further formal research. Through our ongoing research and daily interaction with clients, Opportunity is committed to the design and delivery of transformative financial tools that bring hope and justice to the poor.
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about the author Ryan Mohling is a graduate student pursuing an MBA from the Kellogg School of Management at Northwestern University and a Master of Public Administration at the John F. Kennedy School of Government at Harvard University where he is a Presidential Public Service Fellow. Previously, Ryan worked in Costa Rica for five years as the Latin America Regional Coordinator of International Schools for Young Life, a nonprofit youth outreach and mentoring organization. He holds a bachelor of science degree cum laude in mechanical engineering from Duke University.
acknowledgements Opportunity International is grateful for the Caterpillar Foundation’s funding of this project. We thank Kellogg’s Paul Christensen, associate director of the International Business and Market Program; Wioletta Dziuda, professor of managerial economics and decision sciences; Leemore Dafny, professor of management and strategy; and graduate students led by Ryan Mohling for working with us to develop and evaluate the research study. In addition, we appreciate the independent review of the research results by Kathleen Odell, assistant professor of economics, Brennan School of Business, Dominican University. To obtain a copy of the full report, email us at getinfo@opportunity.org.
1 Odell, Kathleen (June 2010). Measuring the Impact of Microfinance: Taking Another Look (p.11). Grameen Foundation Publication Series. 2 Brune, Giné, Goldberg and Yang (October 2010). Commitment to Save: A Field Experiment in Rural Malawi. World Bank Research Committee and the Bill & Melinda Gates Foundation.
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Cover photo: Opportunity Malawi clients meet with their loan officer next to the mobile bank that makes a weekly stop in their rural community.
Our mission is to provide opportunities for people in chronic poverty to transform their lives. Our commitment is motivated by Jesus Christ’s call to serve the poor. Our core values are respect, commitment to the poor, integrity, and stewardship. We serve women and men of all faiths and no faith.
Visit us at opportunity.net
Opportunity International is a 501(c)(3) nonprofit and serves all people regardless of race, religion, ethnicity or gender. Š 2011 Opportunity International