Improving the Sustainability of Micro-financial Institutions
Submitting InstitutionUniversity of Salford
Unit of AssessmentSocial Work and Social Policy
Summary Impact TypeEconomic
Research Subject Area(s)
Commerce, Management, Tourism and Services: Business and Management
Studies In Human Society: Policy and Administration
Summary of the impact
Through Community Finance Solutions (CFS), an award winning
research and development unit of the University of Salford, which
addresses financial and social exclusion, Improving the Sustainability
of Micro-financial Institutions is focused on providing leadership
in increasing the sustainability of micro-financial institutions (MFIs)
that provide credit or loans to the financially excluded, demonstrating
the following impact:
- Increasing access to finance for excluded groups, reducing
unmanageable debt and improving the quality of life;
- Supporting public authorities in developing financial inclusion
- Changing EU policy, developing a model of sustainability and
transparency for MFIs through the European Code of Conduct for
The key researchers and positions they held at the institution at the
time of the research are as follows: Professor Karl Dayson, (from
1999), Professor of Sociology (2011), Associate Dean (Enterprise and
Engagement) College of Arts and Social Science (August 2012), Director of
Sociology and Criminology Directorate (January 2009) Professor Sunil
Vadera (submitting to UoA B11) (from 1982) Head of School of
Computing, Science and Engineering, Associate Dean Research and Innovation
(from 2011). The impact described in this case study is underpinned by the
- Context: 1999-onwards: In Investing in People and Places,
Dayson et al. examined the effects of financial exclusion in two
deprived neighbourhoods and considered possible ways to reduce it
through microfinance. Investing in People and Places proposed a
new form of microfinance institution (MFI) which would achieve
sustainability through lower operational costs and greater efficiency.
Dayson et al.'s research found that for one microenterprise lender it
cost £8 to lend £1 and that at least 19% of MFI staff time was spent on
business support and advice — an activity which decreased financial
efficiency yet which should have been provided by other organisations.
- 2005-2008: Lloyds TSB Operational Sustainability Research
project aimed to enhance the operational and financial performance of
the Community Development Financial Institution (CDFI) sector and assess
the overall profitability and sustainability of the industry through an
in-depth analysis of five UK CDFIs perceived to be market. Dayson et al.
proposed an activity-based approach to product costing which would offer
a means for MFIs to assess and improve their organisational efficiency.
The proposed assessment approach was used in a study of efficiency and
productivity in five MFIs in the UK, which identified ways to cut costs
and increase efficiency while and making recommendations about the
configuration of loan portfolios and the establishment of effective
- 2008-2011: Through two Knowledge Transfer Partnerships with
East Lancashire Moneyline (IPS) Ltd., Dayson, Vadera et al. developed a
web-based Credit Risk Assessment Tool to aid in the processing of loan
applications. CFS has worked with East Lancashire Moneyline (IPS) Ltd.,
since 2002 when the centre was founded and Dayson is a board member,
offering advice and on-going support and initiating the KTP with the
School of Computing, Science and Engineering. The KTP, which ran in two
phases from 30/9/2008 to 29/9/2010 and 29/9/10 to 5/7/11 developed a
Credit Risk Evaluation tool (CRET) and a data control system for loan
and savings account processing.
- 2011: Dayson et al. examined and assessed policies for
microfinance at national and international level in an evaluation of MFI
policy under the Labour administration, asserting that the transfer of
responsibility and support for MFIs from the Department of Trade and
Industry to the Regional Development Agencies led to an increased focus
on the support for small businesses at the expense of community
development — and MFI sustainability.
- 2005-2013: A founder member of the European Microfinance
Research Network (EMRN) (2005), Dayson led the editorial team that
published the Handbook of Microcredit in Europe, which reviewed
the experiences of 18 countries, highlighting variations in the
characteristics of MFIs and their associated practices. As a result,
Dayson identified the emergence of a new model for the delivery of
microfinance in Europe: Complex Interrelationship Microfinance
Finance Initiatives, leading to being commissioned to develop a
model for the European Community; the European Code of Good Conduct
for Microcredit Provision, which provides a set of standards for
management, governance, risk management, reporting, and consumer and
investor relations that are common to the microcredit sector in the
References to the research
1. Dayson, K. (2011) `Access to Finance in Deprived Areas: Has the
Government Lost Interest?' Pp. 123-141 Enterprise, Deprivation and
Social Exclusion: The Role of Small Business in Addressing Social and
Economic Inequalities, edited by A. Southern. New York: Routledge. ISBN
9780203817773 (REF 2)
2. Dayson, K. (2010) `Conclusion.' Pp. 385-392 in Handbook of
Microcredit in Europe — Social Inclusion through Microenterprise
Development, edited by B. J. Carboni, M. L. Calderón, S. R. Garrido,
K. Dayson and J. Kickul. Cheltenham: Edward Elgar Publishing. ISBN
3. Wu, J., Vadera, S., Dayson, K., Burridge, D. Clough, I. (2010) A
Comparison of Data Mining Methods in Micro Finance. IEEE:
International Conference on Information and Financial Engineering,
pp. 499-502. DOI
4. Dayson, K., Paterson, B., Salt, A., Vik, P. (2008) Lloyds TSB CDFI
Operational Sustainability Research Project — Final Technical Report'
(for Lloyds TSB plc). Salford: University of Salford, Community Finance
5. Dayson, K., and Vik, P., Paterson, B., and Salt, A. (2008) Making
European Microfinance more Sustainable — Lessons from Britain.
European Microfinance Network 5th Annual Conference "Microfinance — a
tool for growth and employment". Nice, France. URL
6. Dayson, K, and Quach, H. (2006) `Developing an Approach to Assess
the Performance of Microfinance in Europe: Experience from a UK Research
Study.' Finance and the Common Good, 25, Summer: 62-68.
7. Dayson, K., Paterson, B., and Powell, J. (1999) Investing in
People and Places. Salford: University of Salford, ISBN 0902896202.
1. 2008-2011: A joint ESRC and EPSRC funded KTP, which ran in two
phases from 30/9/2008 to 29/9/2010 (£107,372) and 29/9/2010 to 5/7/2011
2. 2010: Drafting
of a Code of Good Conduct for Micro-Finance Institutions, EC
(Non-Framework), £60,750.00. Principal Investigator: K
3. 2012: EC
Code Monitoring Methodology, EC (Framework), £44,273.00. Principal
Dayson (75%). Co-Investigator: P
Details of the impact
Increasing access to finance for excluded groups:
- Through projects funded by Lloyds TSB, Barclays Bank, Esmée Fairbairn
Foundation, the Housing Corporation and European Regional Development
Fund, during the early 2000s CFS helped to set up eleven MFIs in England
(in Salford, Portsmouth, Blackburn, Preston, Derby, Sandwell, Blackpool,
East London, Cumbria, Suffolk and Devon), each of which built in lower
operational costs and greater efficiency than pre-existing models for
MFIs. Nine of these are still functioning. The most successful has been
the East Lancashire Moneyline (IPS) Ltd., (ELM) from Blackburn (with CFS
on its Board), which grew from a single office in January 2001 to 25
branches throughout the UK in 2012, employing 50 staff.
- ELM's customers often do not have bank accounts and may have accrued
unmanageable debts, partly through prior high-interest loan arrangements
with money lenders. A typical customer has loans outstanding of £500,
with interest standing at approximately £80 per £100. ELM is able to
offer affordable finance to these more disadvantaged, marginalised and
at-risk groups on low incomes who would not normally be able to access
loans from banks. Winning the `Responsible Lender of the Year' award in
2012, ELM made 21,000 loans in 2012 — roughly 1,750 every month, and
twice the number granted in 2011 — for a total of more than £10 million.
A customer at East Lancashire Moneyline: "I don't know where I'd be
without you, to be honest with you. You've been a godsend."
- A key challenge is identifying predictors of default in what the
banks would consider a `subprime' sector. Apart from recommending simple
and socially relevant decision criteria, through two KTPs, CFS developed
a web-based Credit Risk Assessment Tool to aid in the processing of loan
applications. Diane Burridge, Chief Financial Officer of the ELM
commented that "The research has helped us to actually have the
confidence to expand into more geographical locations. We ultimately
want to make the business national, and it means more people who
wouldn't necessarily have had access to the service will have access
to affordable finance". The project is the first of its kind in
the sub-prime finance market.
- Total number of loans since inception: 65045.
- Total value of loans: £37,225,431.
- Number of people having used the service: 25,264.
- Total amount in savings: £3,283,159 (this is the total amount
deposited since inception, not the current value on deposit).
- With regard to the impact on defaults; write-offs as a % of gross
lending have reduced from 14.3% in 2009 to 8.8% in 2013.
- "We have significantly reduced the impact of taking on new
business in new geographic locations as a result of having the risk
database to support new staff in new locations as a result of the
KTP." Diane Burridge
Supporting public authorities in developing financial inclusion
- Between 2008 and 2013, CFS provided advice, consultation and
recommendations to financial organisations, local authorities and
housing authorities dealing with the financially excluded. Funded
research projects were completed for the Friends Provident Foundation
(2008, and 2010), Leeds City Council (2009), Barnsley MBC (2009) and
Rochdale MBC (2010). Dayson was invited to contribute to recommendations
developed by Glasgow City Council's Sounding Board on Payday Lending,
which will be implemented to promote financial inclusion in the city.
Changing EU policy: A model of sustainability and transparency for
- 2010-onwards: In 2010 CFS was approached to draft the Code of
Good Conduct for Microfinance Institutions (MFIs), for and in close
cooperation with the European Commission. The purpose of the Code of
Good Conduct is to develop a set of expectations and standards that are
common to the microfinance sector in the European Union for the benefit
of customers, investors, funders, owners, regulators and partner
organisations. The project consisted of an extensive review of existing
codes of conduct and guidelines for MFIs in the EU and beyond,
facilitation of stakeholder and expert workshops, and consultation and
discussions with MFI trade bodies. The Code
of Conduct for European Microcredit Providers, has now been
adopted by the Directorate-General for Regional Policy. Research
conducted at CFS is particularly reflected in the chapters on risk
management, reporting standards and management information systems. The
European Parliament is in the process of adopting the content of the
University's European Code of Conduct for Microcredit providers as an
essential requirement for future EU funding.
Sources to corroborate the impact
a) Chief Financial Officer, East Lancs Moneyline
b) ESRC — Knowledge Transfer Partnership, University of Salford-East
Lancs Moneyline, Video: `Enabling Low Cost Loans': http://www.esrc.ac.uk/publications/videos/creating-impact.aspx?media-component=tcm:8-23530&type=video.
c) European Commission, Directorate-General for Regional Policy (2011) Code
of Conduct for European Microcredit Providers:
d) European Microfinance Network, `Benchmarking and Performance
e) European Microfinance Network, Le Prix de la Recherche du
Microcrédit Européen 2008 - Fondation Nantik Lum. (Prize awarded to
Karl Dayson and Pal Vik.): http://www.european-microfinance.org/research-awards.php.
f) European Microfinance Network, `Our Members': http://www.european-microfinance.org/qsn-nos-membres_en.php.
g) Leeds City Council, `Leeds — Financial Literacy and Financial
h) Glasgow City Council Sounding Board on Payday Lending, report