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Improving Microfinance as an Anti-Poverty Tool

 
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Improving Microfinance as an Anti-Poverty Tool
   

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 To learn more about this author, visit Grameen Foundation's Website.

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Grameen Foundation
(Visit Grameen's Website)
Grameen Foundation's mission is to empower the world's poorest people to lift themselves out of poverty with dignity through access to financial services and to information. With tiny loans, financial services and technology, we help the poor, mostly women, start self-sustaining businesses to escape poverty. Founded in 1997 by a group of friends who were inspired by the work of Grameen Bank in Bangladesh, our global network of microfinance partners reaches over 3.6 million families in 25 countries.
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