Successes and limitations of microfinance in addressing financial exclusion in south east Queensland, Australia

Abstract

This study examined the contributions and limitations of microfinance in addressing the financial exclusion of people on low incomes in Australia. This investigation differed from previous studies, in that it examined financial inclusion from the viewpoint of recipients’ financial access and financial capability after completing a microfinance program. As its underpinning theoretical standpoint this study employed a social constructionist paradigm that emphasised people’s experience and incorporated the four key concepts of the Capability Approach, namely functionings, capability, freedom and agency. The conceptual model situated people’s ability to achieve financial inclusion from a consideration of the opportunities and barriers people encountered in their lives.This qualitative study explored the perceptions of recipients and workers of the contributions and limitations of two microfinance models in Australia. These two microfinance models are the “spend-first” model as in the No Interest Loan Scheme (NILS) program and the “save-first” model as in AddsUP and Saver Plus matched savings programs. The research data was collected using semi-structured interviews with microfinance recipients and program workers, using a purposive voluntary sampling method. A total of 37 people participated in semi-structured interviews, 17 from the “spend-first” model, nine recipients from the “save-first” model, and 11 microfinance workers. Out of the 26 recipients, 17 were from a culturally and linguistically diverse (CALD) background and 11 of this group were from a refugee background. The data was analysed thematically.The two microfinance models made different contributions to people’s ability to achieve financial inclusion. Recipients valued the “spend-first” model (NILS) as non-exploitive credit and as a “savings in reverse”. The use of these loans was an alternative to using costlier forms of credit to meet immediate needs and to achieve functionings. This model also assisted CALD recipients from a refugee background to integrate into Australian communities and built trust with community members. By viewing the NILS model as a circular fund where repayments benefit others, this model fostered a strong sense of responsibility for migrants and non-migrants recipients alike. The “save-first” model provided a one-off matched fund of up to $500 upon completion of the savings period. Both the matched savings programs emphasised developing a savings habit as the key to improving people’s financial capability. The opportunity for interaction during Saver Plus’s financial education classes contributed to recipients’ social wellbeing by fostering a sense of community, enhancing recipients’ social networks, and enabling sharing of financial ideas and information among recipients.The original conceptual framework was revised to contextualise the potential enhancers or inhibitors of the opportunities and barriers recipients encountered in their lives by examining their goals and values, individual abilities and their external environment. The revised model integrated these opportunities and barriers with an external freedom in the form of a microfinance program, the key concepts in the Capability Approach, and people’s ability to achieve financial inclusion from the recipients’ and workers’ perspectives. Recipients considered their capacity to achieve financial inclusion as being influenced by their individual abilities, goals and values and the external environment. Recipients clearly thought that they were managing their finance well as they could make ends meet on a limited income, despite having multiple demands, and having difficulty in increasing their incomes. On the other hand, workers generally did not situate people’s ability to achieve financial inclusion within the context of opportunities and barriers people encountered in their lives, and generally linked people’s ability to achieve an outcome to their individual responsibility. Workers suggested that recipients had a spending mentality and needed financial education to better manage their finance, hence emphasising the usefulness of the financial conversations of the “spend-first” model and the financial education classes of the “save-first” model (Saver Plus) to improve people’s money management skills.Even though the NILS program assisted recipients to smooth their expenses and provided a freedom for recipients to achieve a functionings, recipients generally did not report longer-term capability change. The majority of the matched savings recipients were savers prior to the commencement of the savings programs and it was unclear if their savings behaviour during the program was due to these prior habits or the result of the programs. Furthermore, the lack of understanding of microfinance workers of the opportunities and barriers people encountered in their lives, as well as the imposition of eligibility criteria, limited the contributions of microfinance. Together, these findings provided evidence and contributed to knowledge and theory to better inform relevant stakeholders in employing microfinance optimally as a development tool, suggesting the need to consider people’s functionings, capability, freedom and agency, in addressing the financial exclusion of people on low incomes.