Microfinance is a process for negotiation between social and financial demand. For this most emphasis has been on Social, financial and institutional performance. This has compromised the opportunities for maximising poverty impact and client performance. The microfinance industry has demonstrated what can be achieved; it has not demonstrated what cannot be achieved. It is now time to innovate and design services that maintain high standards of financial performance and new standards in poverty impact. This is time for “Innovate new product, to make more social and poverty-focused microfinance”. For this we can think about-
  • Understand the costs
  • Loan size
  • Increased demands on staff
  • Smaller portfolios
  • More remote areas
  • Benefits
  • Lower exit rates and arrears
  • Higher saturation rates
  • More cost-effective
  • Improve the impact
  • Institutional self-sufficiency
  • Client self-sufficiency and success
  • Vulnerability can be overcome
  • Very poor clients can achieve significant growth and changes
  • Protected mechanisms to exclude the poorest
  • Facilitate mechanisms that will lead to poverty impacts
  • Simple steps to improve MFIs outreach and their effectiveness
  • Traditionally Very poor people are excluded through self-exclusion, deliberate or unplanned MFI policy, exclusion by other clients, or by leaving the programme.
  • Assist Micro Entrepreneurs and Entrepreneurs for job creation of poorest people
  • Systems to work with the very poor develop from this vision
  • Ensuring impact
  • Market research for understand clients’ underlying needs
  • Impact is dependent both on the right products and services
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 social protection and credit & savings. 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. Where repayment is made from business profits, regular repayments and pressure from the MFIs are important to encourage focus on the business activity and to develop business management skills. Linkages of local resources & close supervision are very important.
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 main key to achieving positive impact. There should be no compulsion to take a loan. Client support and skills-sharing should be encouraged. Gender awareness should be integrated into program practice at the level of field staff-client relations, and within organizations’ procedures and culture.
Basic impact information is needed for program design to ensure effective management towards improved impact on the poorest. Poverty outreach data and Desegregation of client loan and savings performance by poverty level is important for designing a product. Client monitoring can give basic, regular information about a small number of proxy indicators for impact, which could form the basis of industry-wide indicators. Poverty auditing can monitor institutional performance in terms of design and delivery of poverty-focused microfinance.