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What’s the ROI in U.S. Microfinance?

posted: 2011-05-20 @ 1:16 pm EDT

By: Elaine Edgcomb, FIELD at the Aspen Institute (Microenterprise Fund for Innovation, Effectiveness, Learning and Dissemination)

While client stories bring poverty alleviation strategies to life and display the human element and connections to an individual program’s work, data is required to document the overall outcomes and impact of microfinance.  One panel at the conference will report on emerging research from developing world impact studies that raise a set of questions for those engaged in the international field.  In the United States, impact studies are few. In fact, one of the most well-known dates back to the 1980’s and looks at the effects on unemployed insurance recipients allowed to apply their benefits to business creation compared to those not provided that option. (The results are complicated but the headline is that there was a statistically-significant, favorable difference in one state and a non-statistically significant favorable difference in the other. The states used different models.)

Since then, the majority of U.S. research has focused on outcomes research that offers a pre-and post-comparison of client status on a range of measures. Many of these studies are done by practitioners using protocols, training and tools offered by MicroTest, a suite of products offered by the Aspen Institute to help programs assess their performance. Akin to past USAID-sponsored work to help practitioners evaluate their efforts for program improvement, these studies have also been used to provide accountability to donors and other stakeholders, and when aggregated  give a strong picture of what clients are reporting after participating in microenterprise development services.  It is work like this that has served as the base for return on investment calculations, which will be discussed in the panel on ROI at Microfinance

USA. We’ll both be exploring different models of measuring ROI in U.S. microfinance, summarizing their results and discussing the issues they raise.

As participants to the session will learn, there is no one definitive model, nor definitive results. Yet the findings are intriguing in many ways. Participants will  hear about ROI from three different perspectives—from a practitioner, a funder, and an intermediary in the industry.  The practitioner perspective will be offered by ACCION New Mexico, Arizona, Colorado. which commissioned an economic impact analysis that estimates microloan impact on overall economic activity, with indicators that focus on the economic multiplier effects of loans invested in enterprises.  The funder perspective comes from Robin Hood. which has developed a model to enable it to compare the results from microfinance investments to those from other poverty alleviation strategies the foundation supports.  The model has ten components focused on both short- and long-term benefits. The final approach is ours, drawn from our MicroTest approach—where we’ve looked at a range of programs relating their reported costs to a few key outcomes such as improvements in client income, job creation, and contributions to state revenues.  We hope to take this work one step further as we collect more data through a newly emerging interactive data website called .

Given the changing donor environment and the competition for funding with other poverty alleviation strategies, illustrating solid data and ROI could prove ever more critical in the years ahead. Join us at the session and take part in the conversation.

Elaine Edgcomb has been the Director of FIELD at the Aspen Institute since 1998. She is also the author and editor of works on evaluation practice, institutional development, financial analysis, and on microenterprise strategies implemented both internationally and in the United States.

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