How Microfinance develops decent work

11 March, 2015

How can microfinance institutions (MFIs) help small enterprises out of the informal economy and into profit? Following is an article from an action research study led by the International Labour Organization (ILO)’s Social Finance Programme, in collaboration with the university of Mannheim in Germany

Many businesses around the world have an informal path which makes employees be excluded from protective measures like labour inspection and social dialogue between employers and employees. The tools used to identify, avoid and amend bad working conditions are not generally applicable to such informal businesses. Thus financial institutions may have a role to create pathways for decent work. 

From 2008 to 2012, the ILO collaborated with 16 microfinance institutions to test a range of approaches to foster social impact through the delivery of innovative financial and non-financial services.  To do so, the involved MFIs addressed four objectives to be realised through improved working conditions: 1) defeat child labour; 2) promote the formalisation of enterprises; 3) reduce vulnerability and 4) enhance business performance.

The financial institutions came up with new ways to address and tackle decent work deficit. Although the target outcomes did not all have the same intensity or intended direction, the study highlighted one key message: “that MFIs can achieve desired results if they identify an issue and then focus on that area to help their clients”.

For the full article, please click here.

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