Oikocredit delivers fresh insights into rural-urban poverty

Farmers-philippines-microfinance-rural-potatoes.jpg31 | May | 2017

Supporting financial inclusion in low and lower income countries by investing in microfinance institutions (MFIs) is central to Oikocredit’s mission. However, as Thelma Brenes Muñoz of Oikocredit’s social performance team says: “We also want to know more about how this work affects the lives of the people receiving loans.”

To take a closer look at this issue, Thelma and Mayank Kumar Jain produced the discussion paper Do rural microcredit borrowers fare better in reducing poverty than urban borrowers? (download: full textexecutive summary) expanding Oikocredit’s knowledge and that of the microfinance community.

Asia provides the largest data pool

Selecting the right MFIs for the research was critical. Thelma revealed that they looked for MFIs with the longest records of collecting data in rural areas using poverty measurement tool the Progress out of Poverty Index (PPI). The MFIs chosen were ASKI and RSPI in the Philippines, and SVCL in India.

Both the Philippines and India have significant numbers of rural poor and all the MFIs involved had collected sufficient data for Thelma and Mayank to be able to look at changes in poverty over time. “It’s important for both Oikocredit and the MFIs that the analysis is reliable,” explains Thelma. “This requires large amounts of data collected over time and Asia is the best region for providing this.”

Judith Tap-Ayaw and her husband Ernest have been growing potatoes since 2008. They joined Filipino microfinance institution (MFI) RSPI in 2014.

Developing the sector’s knowledge

Previous studies have compared poverty levels of rural and urban borrowers at a single point in time. “But you can only see the real picture when you study historic data,” says Thelma.

There are several benefits to undertaking such detailed research. First there is a benefit to Oikocredit and its partners: “By knowing the effects of microcredit in specific areas, it helps everyone involved, both MFIs and Oikocredit, to improve social targets,” explains Thelma.

The second reason is that while there is research into microfinance, there are few studies looking at its effects on poverty levels over time. This makes Oikocredit’s research an invaluable contribution to the global pool of microfinance knowledge.

What next?

The success and results of this discussion paper have generated ideas for fresh research projects, one directly linked to the findings of the current paper. “One topic we’ll be looking at is attrition rates and client exits,” says Thelma.

When clients exit an MFI without returning for a further loan, it means the MFI has to look for new clients. Oikocredit’s social performance department wants to look at whether clients do not return for more loans because they no longer need the financing, or if there are other reasons.

The other research project that is planned is on gender and poverty over time, another topic that is lacking longitudinal studies.

  • Read an executive summary of the discussion paper Do rural microcredit borrowers fare better in reducing poverty than urban borrowers? Or download the discussion paper’s full text

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