The Impact of Microfinance Services: Increasing Income or Reducing Poverty?

Publication Date: Mar 1999
Published by: MicroSave
Document Type: Paper

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Should we focus on increasing incomes or reducing poverty?

This paper examines the impact of microfinance services on issues such as poverty reduction and diversification of household risks, based on the experiences of microfinance institutions in Bangladesh and published research on programmes elsewhere across the world.

The major finding of the paper are:

• Income security is a more reliable measure than increased income for the assessment of impact.
• Assistance in business development is of limited help in reducing poverty.
• Financial services are utilized by the poor for diversification of their income sources.
• Diversified income sources help the poor in overcoming shocks arising from the risks they face.
• Provision of financial services, including savings, enable the poorest in joining microfinance programs.

• Microfinance services help the poor in coping with risks that arise from structural factors in the economy, household shocks and lifecycle events,
• Well designed microfinance services can reduce poverty.