Factors Influencing Poverty Outreach Among Microfinance Institutions in Latin America

Using micro-level client data to investigate how Latin American MFIs reach poorer clients

103 pages

This report investigates the poverty outreach of 14 microfinance institutions (MFI) across six Latin American countries: Peru, Colombia, Bolivia, Ecuador, Guatemala, and Nicaragua. It uses information that these MFIs have collected in terms of poverty likelihood using the Progress Out of Poverty® Index (a.k.a. Simple Poverty Scorecard)supplemented by in-depth interviews with industry experts.

This report investigates the poverty outreach of microfinance organizations using micro-level data of client bases. We stratify the behavior of MFIs based upon poverty, the percentage of poorer households in regions, and the associated client profiles. The report explores the different percentages of poorer clients in the MFIs portfolios across regions and contrasts them with their mission statements. The report also triangulates information gleaned from MFI interviews to shed light on their behavior, such as the commercial strategies of these MFIs. Micro-level data was also used to understand the MFIs’ client profiles in terms of loan size and the frequency with which they receive loans.

In summary, a number of recurring themes emerged throughout the country analyses in terms of poverty outreach among the MFIs:

The MFIs that focus their commercial strategies in regions with higher percentage of poor reach more poor people .
The report also surfaced two interlinked factors driving poverty outreach across some Latin American markets: competition and over - indebtedness.
Regions with the highest banking saturations experience the highest MFI poverty outreach. The search for less competitive market segments seems to be driving greater poverty outreach, rather than principled mission statements.
Relatively wealthier individuals receive larger loans than less wealthy ones ; however, the latter tend to receive loans more frequently. In particular, women receive smaller size loans than men, but they receive them more frequently (even when controlling for the effect of VisionFund MFIs )
Financial sustainability is a concern for all MFIs and informs the choice of which markets to enter. The largest operations tend to be in areas of poverty rates on both sides of the spectrum.