Outreach and Sustainability of Rural Microfinance in Asia: Observations and Recommendations

This paper examines whether and how microfinance can help alleviate poverty and whether MFIs can become self-reliant and viable. It examines issues of MFI outreach, viability and sustainability, resource mobilization, and policies.

Study findings are based on empirical studies conducted in China, Fiji, India, Indonesia, Malaysia, Nepal, Papua New Guinea, Philippines, Solomon Islands, Sri Lanka, and Tonga. They indicate that donor money is the main source of MFIs' resources. Commercial banks are unlikely to engage in poverty lending. Conclusions include:

• MFIs can be viable and at the same time reach out to the poor, particularly when including both the poor and the non-poor among their clientele;
• Savings mobilization is crucial for institutional sustainability;
• Any type of MFI can be viable with sound banking practices;
• MFIs needs a conducive policy and legal environment to be sustainable;
• Banking with the poor can be profitable, though most MFIs have not adequately learned the art of microfinance;
• NGOs can establish viable and sustainable MFIs;
• Poor are able to establish their own financial institutions and make their own decisions on access criteria, contractual terms and conditions, and loan purposes.