The impact of microfinance on the capabilities of participants

This thesis demonstrates how microfinance programs influence the capabilities of participants. It does so by addressing two subsidiary questions: what are the impacts of microfinance programs and how do microfinance programs foster these impacts?
Microfinance is becoming a global phenomenon. However, in spite of this growth, there has been little in the way of research to try to understand the impacts of the programs in a multidimensional way, especially in Australia.

This thesis uses frameworks of social and financial exclusion and Sen’s capability approach to understand the impacts of microfinance programs on participants. Social and financial exclusion provide a multidimensional approach to addressing issues of disadvantage for low-income households. The capability approach is also multidimensional and focuses on three main areas: what a person values, what a person has the capability to achieve (which includes the freedom and choice they have to achieve the things they value) and a sense of agency.

Qualitative interviews and participant observation were used for data collection, as individual experiences and narratives were central to the study. Participant observation provided a contextualised understanding of the lives of participants, which allowed for a greater depth of understanding and analysis.

The research found that the impact of microfinance was threefold: the impact on financial elements for participants, impact on the social dimensions in the participants’ lives and the development of enhanced capabilities. In reference to the financial impacts, participants spoke of four main areas: increased levels of savings, increased financial capability, increased financial security and greater levels of economic participation. These impacts were brought about through a combination of the financial aspects of the programs as well as through social aspects such as the provision of support networks.

The impacts on the social dimensions of the microfinance programs were primarily a result of participation in the savings and loans circles and the Enterprising Women program. These programs provided avenues for social interaction among participants. The social impacts that participants experienced were increased levels of support, greater trust, feelings of reciprocity and a sense of belonging. These impacts are all highly interconnected as they relate to the social networks that can form when people meet, thus increasing social capital. What was discovered was that a combination of the financial and social elements led to an enhanced sense of capability for participants. People spoke of greater freedom, empowerment and confidence, sense of equality, well-being and sense of achievement.

One of the main implications of this research is that if programs are to truly improve the capabilities of low-income individuals and families, then they need to provide both financial services and avenues for people to interact with one another. It is a combination of both these services that leads to the enhancement of capabilities for people.