Can Microfinance Reach the Poorest: Evidence from a Community Managed Microfinance Intervention
This case study evaluates the effectiveness of microfinance programs that require a high degree of involvement from its participants in reaching the poorest potential borrowers. It analyzes participation in the context of community-managed microfinance in a rural area in one of the world’s poorest countries, Malawi. The study is based on panel dataset from a household survey from 885 households in Northern Malawi. To make an analysis of the outreach of the program, the study reports on standard metrics of targeting effectiveness and also develops its own metric that is sensitive to both depth of poverty as well as income distribution of the poor. It finds that outreach is regressive and participants are less poor that the overall population in the area. The study covers the following sections in detail:
- Discussion on the village savings and loan associations as a community-managed microfinance program;
- Review of relevant literature that covers outreach and effectiveness of microfinance programs;
- Development of a new metric to evaluate outreach of the program;
- Discussion on the data and empirical strategy used for the study;
- Evaluation of the results and recommendations for increasing the outreach of microfinance programs.