This report was originally published by the European Parliament Think Tank.

Microcredits and cash transfers are two distinct tools, but they both target poor households and individuals with cash alike. A report by the Elcano Royal Institute and TEPSA provides details of the latest advances in these cash-for-development tools at a time when the European Union is reshaping its development finance tools for the 2021-27 period.

Through a literature review, this study provides the current state of knowledge on microcredits and cash transfers.  It then considers current EU support for these modalities and assesses this support considering the main findings and conclusions drawn from the literature. Research reveals much evidence confirming cash-for-development tools’ contributions to poverty reduction. Furthermore, it identifies a second layer of positive economic effects resulting from their use that can be of value when determining responses to the COVID-19 crisis. Moreover, even though microfinance and cash transfers have undergone exponential growth in recent decades, their use remains very limited at EU Institution level. The report recommends that a broader and more systematic use of cash-for-development tools should be explored by EU Institutions, albeit framed within broader programming and context analysis.

The report was requested by the European Parliament’s Committee on Development, coordinated by the Trans European Policy Studies Association (TEPSA), and authored by Aitor Pérez, Senior Research Fellow at the Elcano Royal Institute (Spain); Nicolás Ayensa, Associate Consultant, Economistas de la Cooperación, S.L. (Spain); and Maricruz Lacalle, Director of the International Master in Microfinance and Financial Inclusion at Madrid’s Universidad Autónoma (Spain).