Paper

Great Expectations: Microfinance and Poverty Reduction in Asia and Latin America

Do the microfinance institutions really reach the 'core poor?'
Download 34 pages

This paper examines the following three issues while assessing the impact of microfinance institutions (MFIs) on poverty reduction:

  • Success of microfinance programs in reaching the core poor;
  • Effectiveness of microfinance initiatives in pulling households out of poverty;
  • Cost effectiveness of microfinance as a poverty-targeting tool.

The paper summarizes the following key findings from various impact assessment studies carried out in Asia and Latin America:

  • In general, a positive impact is found on borrower incomes of the poor;
  • Gains are larger for non-poor borrowers;
  • Borrowing by males appears to have no significant impact on consumption, while the same by females does have a positive impact;
  • Experimentation and local variation are important aspects of successful MFIs;
  • The NGO programs appear to score over government-run programs, both in terms of conventional financial criteria like repayment rates, as well as measures of initial impact like targeting effectiveness;
  • Training, in conjunction with credit, appears to work well;
  • Availability of savings facilitates asset growth amongst households.

The author concludes by stressing on the need for a more rigorous research on the outreach, impact and cost-effectiveness of microfinance programs. This would facilitate in the donor community's understanding of the role of microfinance in reaching the poor, its impact in different environments, and its cost-effectiveness as a poverty intervention.

About this Publication

By Montgomery, H., Weiss, J.
Published