It’s All About the Sweet Spot, People

> Posted by Center Staff

The bad news is, a new study has found that microfinance has difficulty reaching the very poor.
The good news is, that’s not the sweet spot of microfinance. Never has been.
Reams of research show that MFIs are best at reaching people who are moderately poor, as well as those scrabbling to stay above the poverty line. That population is huge enough to keep the world’s MFIs running at full steam for a terribly long time to come.
So there is not much “new” news in the metaevaluation on microfinance released by the Evaluation Cooperation Group of international financial institutions.
But helpfully, the new study reminds us of several points and potential pitfalls, including:

  • “[Reaching] the very poor microfinance intervention requires careful design and a means of preparing them [poor clients] for full participation”
  • “[Commercialization] runs the risk of an increased concentration on the less poor, as these are more likely to take out larger and hence lower-cost loans”
  • “[C]oncern that aggressive marketing of microfinance may push poor borrowers into taking high-cost loans”

It’s important to remember that hard work has been under way for several years to find creative ways to extend the industry’s benefits to the very poor.
We need look no farther than the SEEP Poverty Outreach Working Group, which is taking on key industry-mapping and evaluation projects in order to bring MFIs closer to the very poor. There are also CGAP Graduation Programs, which put pilots in motion in places like Ethiopia.
Microfinance has found its sweet spot. The question is, can that spot expand to cover the very poor? Studies like this remind us that we have a long way to go.
Flickr credit: ogimogi
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