Studies | 13 February 2008

Employment effects of micro and small enterprise finance

The focus of the 2007 EFSE Development Impact Study was on the impact of the Fund’s refinancing to banks and microfinance institutions (MFIs) for lending to urban micro and small businesses (MSEs). The study, consisting of desk and field research on bank/MFI and on end-borrower level, was conducted by the Dutch consulting company TriodosFacet. The reviewed time horizon were the three years between January 2005 and December 2007.

The main findings were:

Credit is important for creation of paid full-time employment

  • Important to very important for 67% of MSEs; 18% would not exist or be closed without the loan
  • MSEs created on average 3 net job positions

Credit helps MSEs prosper and grow

  • Household situation improved for 75% of owners after on the loan
  • 12% of enterprises graduated from micro to small enterprise level

Credit to small enterprises is more effective in creating jobs

  • Small enterprises are more likely to create jobs than micro enterprises
  • Micro enterprises rather sustain employment

MSEs from labour-intensive economic sectors are more likely to create jobs, with the production sector most efficient in job creation

EFSE loans to partner institutions contribute to improvement of MSE lending and overall banking operations

  • Strengthen responsible finance practices; target-group specific lending products; cash-flow based lending methodology
  • Increase outreach and loan maturities
  • EFSE as spring-board attracting other creditors and investors


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