Design & Delivery Of Poverty-Focused Microfinance

Most MFIs do not reach large numbers of very poor people. Conventional microfinance acts through deliberate and unintentional mechanisms to exclude the poorest. Programs therefore need to be designed to include the poorest, and to facilitate mechanisms that will lead to poverty impacts. Through increasing their understanding of poverty, MFIs can take simple steps to improve their outreach and their effectiveness for the poorest.
Market forces operate to serve the less-poor first. Very poor people are excluded through self-exclusion, deliberate or unintentional MFI policy, exclusion by other clients, or by leaving the programme.

MFIs should understand who they do reach or exclude and why.
MFIs should target poorer areas in the countries they work through rigorous geographic targeting.
MFIs wishing to have an exclusive poverty focus should target and motivate poorer people in the areas in which they work – active targeting leads to a greater focus and inclusion of the very poor.
To reach the poorest MFIs need a culture of poverty organizational vision and commitment felt by staff at all levels and by clients.
Systems to work with the very poor develop from this vision
Market research should understand clients underlying needs, and not just listen to the the loudest voices.
Impact is dependent both on the right products and services, and the way in which they are delivered.
Microfinance can create negative impacts and these need to be understood and steps taken to or reduce these.
Design of products should be based on their potential to reduce poverty, risk and vulnerability, not their attractiveness to clients.
Very poor clients need a range of financial services, including both credit and savings. The very poor are economically active and can often use credit.
Access to credit should be linked to ability to repay either through demonstrating savings capacity or business profits.
Where loan repayment is made from existing income sources there is a need for flexibility in savings and loan repayments. Savings in particular should be easily accessible, both for deposits and withdrawals. Loans do not need to be tied to a particular activity.
Where repayment is made from business profits, regular repayments and pressure from the MFI are important to encourage focus on the business activity and to develop business management skills.
A range of other financial and non-financial products, such as emergency loans, insurance or educational inputs, can help clients cope with emergencies, smooth consumption, and generally reduce their risk and vulnerability.
Client need for flexibility and a range of products needs to be balanced with an MFIs capacity to manage an increasingly complex and diverse portfolio.
Very poor clients are vulnerable and often experience problems. MFIs should support clients in coping with these, rather than coercing them into making loan installments.
An organizational culture of poverty-focus and impact in an MFI is key to achieving positive impact.
There should be no compulsion to take a loan.
Client support and skills-sharing should be encouraged.
Lessons should be learned from community-based organizations and other models of microfinance.
Gender awareness should be integrated into program practice at the level of field staff-client relations, and within organizations procedures and culture.

MFIs should understand who they do reach or exclude and why.

MFIs should target poorer areas in the countries they work through rigorous geographic targeting.

MFIs wishing to have an exclusive poverty focus should target and motivate poorer people in the areas in which they work – active targeting leads to a greater focus and inclusion of the very poor.

To reach the poorest MFIs need a culture of poverty organizational vision and commitment felt by staff at all levels and by clients.

Systems to work with the very poor develop from this vision

Market research should understand clients underlying needs, and not just listen to the the loudest voices.

Impact is dependent both on the right products and services, and the way in which they are delivered.

Microfinance can create negative impacts and these need to be understood and steps taken to or reduce these.

Design of products should be based on their potential to reduce poverty, risk and vulnerability, not their attractiveness to clients.

Very poor clients need a range of financial services, including both credit and savings. The very poor are economically active and can often use credit.

Access to credit should be linked to ability to repay either through demonstrating savings capacity or business profits.

Where loan repayment is made from existing income sources there is a need for flexibility in savings and loan repayments. Savings in particular should be easily accessible, both for deposits and withdrawals. Loans do not need to be tied to a particular activity.

Where repayment is made from business profits, regular repayments and pressure from the MFI are important to encourage focus on the business activity and to develop business management skills.

A range of other financial and non-financial products, such as emergency loans, insurance or educational inputs, can help clients cope with emergencies, smooth consumption, and generally reduce their risk and vulnerability.

Client need for flexibility and a range of products needs to be balanced with an MFIs capacity to manage an increasingly complex and diverse portfolio.

Very poor clients are vulnerable and often experience problems. MFIs should support clients in coping with these, rather than coercing them into making loan installments.

An organizational culture of poverty-focus and impact in an MFI is key to achieving positive impact.

There should be no compulsion to take a loan.

Client support and skills-sharing should be encouraged.

Lessons should be learned from community-based organizations and other models of microfinance.

Gender awareness should be integrated into program practice at the level of field staff-client relations, and within organizations procedures and culture.