By Nina Fenton and Claudio Cali

Microfinance institutions are so busy lending, they often don’t have the resources to dive deeply into the impact of their work. The European Investment Bank partnered with a lender in Côte d’Ivoire to identify their successes and the areas where they can improve.

Première Agence de Microfinance Côte d'Ivoire (PAMF) provides financial services to more than 17,000 micro entrepreneurs and small-scale farmers in northern and central Côte d'Ivoire who are excluded from commercial banking services. PAMF has been supported by the Luxembourg Microfinance Development Fund, which received funding from the European Investment Bank under the Impact Financing Envelope for Africa, the Caribbean and the Pacific.

The European Investment Bank supported an impact study to dive deeper into the impacts of PAMF’s solidarity-group lending. (Solidarity-group lending is a practice where small groups borrow collectively and the members encourage one another to repay.)  Gloria and Guylaine, two talented researchers from Rwanda and Cameroon, surveyed 300 borrowers and carried out a series of key informant interviews. Their results showed that:

  • PAMF is one of the few institutions reaching clients in some of the poorest areas of Côte d’Ivoire. The average client is uneducated or poorly educated and lives in a household of eight members.
  • PAMF contributes to increased financial inclusion. More than 94% of borrowers were financially excluded prior to gaining access to a PAMF loan.
  • Clients are satisfied with PAMF products and services. Repeat clients are more likely than new clients to recommend PAMF to friends and family. This suggests that the overall levels of satisfaction increase alongside client loyalty.
  • PAMF loans provide a springboard to economic expansion and diversification. Most clients (80%) reported that their loan was used for business purposes and one in three claimed to have developed at least one additional income generating activity.
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“Thanks to PAMF, I was able to start another business in addition to the farm I already had”

  • PAMF client
  • PAMF loans have enhanced business outcomes. The study revealed a positive and statistically significant impact of successive borrowing on the economic and financial performance of microenterprises.

“I can [now] provide for my family, I am so happy”

  • PAMF client
  • PAMF lending increases subjective well-being and decreases vulnerability. Repeat borrowers report higher economic well-being (a combination of perceptions of income security and improvements in living standards) and have a higher probability of being able to deal with unexpected adverse conditions.
  • However, the impact of PAMF lending is less pronounced for women entrepreneurs – the institution’s main customers. Women are more likely to have more positive perception of their own economic well-being, but male borrowers earn 47% higher profits than women. This may reflect wider social norms and market conditions affecting the success of female micro-entrepreneurs in Côte d'Ivoire.

“The loan I received has helped us in our group activites, but the problem is that the market is tough”

  • PAMF client

Microfinance impact lessons learned

PAMF and the Luxembourg Microfinance Development Fund were encouraged by evidence that they are achieving positive impacts for underserved groups. PAMF constantly monitors its clients and was delighted to dive deeper into its profile with the study run by the European Investment Bank and the Global Development Network.

Thanks to the rigorous approach applied by the researchers and technical experts, PAMF was able to get quantitative insights into the benefits it delivers. This evidence will help PAMF substantiate its impact for existing and potential investors. The study also pointed PAMF and the fund manager towards things they can do better, to catalyse greater impact. They are looking at ways to further empower women and boost their capacity to benefit from borrowing, and ways to help customers make investments in bulkier productive assets, allowing them to boost their earning potential in the longer-term.

For example, increasing the loan sizes offered to successful repeat client groups could help to increase impact while keeping risk low. In addition, some of the clients may be ready to move on to PAMF’s recently launched loan product aimed at small and medium-sized enterprises. These loans are slightly larger and allow eligible clients to move away from the group lending modality.

EU bank impact studies of impact investments

Impact measurement is central to the European Investment Bank’s business in developing countries. Since its inception in 1958, the European Investment Bank has invested over €1 trillion, around 10% of it outside the EU. These investments are selected and designed to generate social, economic and environmental benefits, alongside financial sustainability. The European Investment Bank tracks the development results of every investment to understand what works and how we can further enhance our impact.

The EIB has been piloting a programme of impact studies of private sector impact investments with the Global Development Network. The studies further deepen our understanding of the impacts of these projects. The programme goes beyond the results measurement the European Investment Bank does for every project by collecting data directly from the people who benefit. This requires boots on the ground and an understanding of local context, so the programme has mobilised 30 talented researchers from developing countries to carry out impact studies of impact investment projects in Africa, the Caribbean and the Pacific. The results of the first wave of studies can be found here.

The research is tailored to a diverse set of impact investments. The investments made by the European Investment Bank range from direct investments in agri-business to support for innovative firms through venture capital funds and indirect lending to micro-enterprises through microfinance investment vehicles.

The researchers have been working with European Investment Bank clients to understand their business models and their development objectives. They then tailor their research to answer questions of mutual interest.

The programme is demonstrating how academically rigorous research can drive impact. Global Development Network has brought in globally renowned experts as impact advisors. The advisors ensure that the studies are carried out with maximum rigour and using the latest methods. Their stamp of approval ensures that the results are a reliable basis for decision-making to enhance development impacts by the European Investment Bank and our clients.

The European Investment Bank also aims to provide empirical evidence of the impact thesis of impact investment—that the private sector can be a key engine for sustainable development.

Nina Fenton and Claudio Cali are economists at the European Investment Bank, specialising in impact finance.