Emerging Insight: Business using under-18 support may be less resilient

Article | 07 September 2023
Approximately 160 million children around the world are in child labour, accounting for almost 1 in 10 of all children worldwide.

The ILO deploys a range of tools and approaches to combat this scourge, including access to finance. The logic is that, if parents have access to enterprise training and appropriate financial services, they can increase household income and manage risks more effectively, and perhaps not have to resort to child labour.

But in some circumstances, access to finance can have the opposite effect, and actually create a demand for child labour. To assess this problematic outcome, the ILO’s Social Finance Programme and 60Decibels spoke with 2,242 clients from eight microfinance institutions (MFIs) to understand how the business used help, paid or unpaid, from children (individuals below the age of 18). Of the business interviewed, 21 per cent reported receiving business support, paid or unpaid, from individual under 18. While this does not necessarily constitute child labour, it is a big red flag that the potential is certainly there.

A new report presents several interesting findings about the impact and risk of child labour in microfinance. For instance, entrepreneurs who used under-18 support were more likely to say that their income ‘very much increased’ compared to those who did not use young workers, suggesting that the reliance on young and perhaps unpaid workers benefitted the business. Furthermore, these businesses were less likely to hire paid workers, which may indicate that there is an employment substitution effect.

The results indicate that MFIs need to look more carefully at who is working in the businesses that they are financing, and under what conditions. Most MFIs would not be pleased to learn that access to credit may increase the use of child labour in the businesses they are financing. Similarly, they need to evaluate the financial position of these clients carefully to avoid imposing financial burdens on the business that force them to deploy underage workers.

To see the other findings, see Risk of child labour in microfinance: findings from the ILO and 60 Decibels.