Microfinance and Child Labour

This paper analyzes the role of microfinance in combating child labor. It reviews empirical evidence of microfinance’s impact on poverty, income stability, household wellbeing and the demand for child labor. The paper also examines MFIs’ direct experience in eliminating child labor.

The paper states that microloans may be effective in reducing income poverty, but empirical evidence on microcredit’s income generating effect remains inconsistent. Microloans may even have a negative impact on the household economy if they increase total labor demand of a family enterprise and thus children’s workload. MFIs could play a role in financing the costs of education, improving the quality of schooling and raising awareness on the negative effects of child labor. Conclusions include:

• Microfinance can have a positive impact on child labor, but does not automatically do so;
• Microfinance’s impact on child labor is high if it is supported by awareness raising, community assistance, education and other tools;
• Policy interventions such as improving the quality of education may be equally or more effective in the fight against child labor;
• Microfinance needs to be sustainable in order to be a viable tool.