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Guest post by: Grameen Foundation Become an Author

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As Father Joseph Philippe, the
co-founder of the Haitian MFI Fonkoze,
states: “You can’t just give a woman a
loan and then send her on her way - you
have to accompany her as she struggles
to make her way out of poverty.” Over
the years, microfinance has been quite
effective in addressing one aspect of
poverty—lack of access to capital. By
creating opportunities for the poor to
have a chance to earn their own income,
the impact has been impressive, and the
potential with further refinements to the
business model even more tantalizing.
But as other factors such as health,
natural disasters, and education have just as much impact on an individual’s ability to generate
and sustain a living, we encourage microfinance institutions to rethink its approach and to include
other critical services. Some visionary MFIs such as the Grameen Bank, BRAC, Pro Mujer and
Fonkoze are already doing this with some success.
Just as consumer banking should ensure that clients are credit ready before they get their
first loan or are extended additional loans or other financial products, microfinance institutions
and the sector as a whole have the responsibility to their clients to ensure that they are adequately
prepared to engage in and derive meaningful long-term value from a microfinance program. By
enhancing their models to include services such as health care, education, and disaster prevention
and mitigation, MFIs and social organizations can make more significant and deeper
contributions to the world’s poor and to help achieve their overall mission. However, before
microfinance can leverage this platform, microfinance service providers need to assess their
client segments, their needs, and the environment in which they operate to design the right model
to address the clients’ needs.
Different approaches may be required depending on the client segments the MFIs and
social service providers serve. To understand the many layers of microfinance, we need to
identify the different segments of the poor. Generally speaking, microfinance serves individuals
living below the poverty line as defined for that particular society, though an increasing number
of long-term clients are no longer poor. But there are various levels of the “poor.” In this paper,
we will focus on the three segments of poverty consisting of the destitute poor (bottom 10 percent
living below the poverty line), the extreme poor (those in the bottom 10 – 50 percent of
households below the poverty line), and the moderate poor (the top 50 percent of the households
living below the poverty line) as defined by a report from the Grameen Trust.14 It is important to
separate these segments, as well as others such as formerly poor and vulnerable non-poor, because each has different circumstances and needs, and MFIs have different approaches to reach
or serve them.

Microfinance: A Platform for Social Change
by Marge Magner
March 2007
Grameen Foundation

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