The aim of this research is to examine if consumer microfinance reduces levels of financial exclusion in the UK and to explore its impact on social inclusion. Despite an abundance of research on microfinance, it is largely based on lending for enterprise, with a developing country focus. There is a dearth of research in Europe which this study addresses by looking at a consumer microfinance institution (MFI) in the UK and assessing its ability (or not) to promote social and financial inclusion. Furthermore, what little research has been carried out has concluded that UK consumer microfinance offers ‘insignificant’ benefit (Lenton and Mosley, 2012:87), however this was based on poverty reduction, not financial inclusion. This work fills the gap in knowledge regarding European consumer microfinance and contributes to its ongoing debate (Corbucci, 2016). This original research, which is based on new data, leads to a greater understanding of the topic hitherto under- studied which others can subsequently build upon.

Grounded Theory (GT) methodology was used, focussing on in-depth interviews with 31 participants from a UK-based MFI. GT generates understanding in fields with little prior literature (Glaser and Strauss, 1967). It is especially apt for reaching the aims because it approaches the field with no a priori assumptions. Instead, it accesses the opinions and experiences from service users who are best placed to ascertain if they feel more or less financially included and why. Also, its core analytical tool ensures that findings are rooted in data which is useful to counteract the assertion that the design of most microfinance research is flawed because it is looking for positive social outcomes (Bateman, 2010).

The main findings are that participants experienced considerable improvements in financial and social inclusion despite poverty-line incomes and poor credit scores thus improving financial capacity and money management. The majority of lending is used for consumer consumption which meets core social needs and contributes to ‘lead(ing) a normal social life in the society in which they belong’ (European Commission, 2008:9). This leads to a higher standard of living resulting in important mental and physical health improvements as well as increasing self-esteem. These results provide empirical evidence demonstrating microfinance’s ability to promote financial and social inclusion. The limitation of the results are that they are not generalizable because of sample size. But it could be extended to include customers from a range of consumer-lending MFIs in the United Kingdom and across Europe to ascertain if the findings can be replicated. These findings represent cutting edge research in an unexplored field of European microfinance so will make a significant contribution upon which others can build future impact studies.