Are you Poor Enough?: Client Selection by Microfinance Institutions

Publication Date: Mar 2001
Published by: MicroSave
Document Type: Paper

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Should the ‘non-poor’ be included in MFI programs to cross-subsidize outreach to the poor?

This paper discusses how microfinance institutions (MFIs) need to design appropriate products in order to reach the poorest people. It states that:

• All MFIs have the same goal - to provide credit and savings services to millions of people in a sustainable way;
• For organizations to make an impact, they should have programs with large outreach;
• Advocates of “targeting the poorest” believe that the emphasis on outreach, sustainability and commercial funding would lead MFIs to focus on the non-poor as preferred clients.

The paper also discusses the demand for MFI services from the non-poor who often lack access to a formal financial system. It argues that providing services to the “vulnerable non-poor” helps them to face risks and stay out of poverty, and is cost effective for both the client and the MFI.

The paper also argues that:

• MFIs need a broad mix of clients to allow economies of scale and cross-subsidies so as to help them deepen their outreach;
• Microfinance services are not reaching the “poorest of the poor” because of the overemphasis on credit delivery and inadequate importance given to providing poor people with a safe place to save.

The paper concludes by saying that:

• For the poorest people, savings services and emergency loans are more important than credit services;
• The impact of microfinance on poverty and sustainability of MFIs depends on the appropriateness of systems and products.