Poverty Outreach: Big Expectations, Mixed Results, Transparency Opportunity

Improving poverty outreach of the microfinance industry
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This paper rates the poverty outreach of MFIs. It aims to help manage the microfinance industry’s reputation risk, increase transparency on poverty outreach results, and identify opportunities to improve poverty outreach. Sources of information for the study include comprehensive social ratings carried out by MicroFinanza Rating, and estimates of household poverty levels using the PPI or consumption data. The sample includes 65 MFIs from 30 countries. Findings include:

  • Globally, only 19% of MFI clients in the sample are poor, suggesting a transparency opportunity;
  • Differences in poverty outreach are higher in NGOs and credit unions, and lower in non-bank financial institutions (NBFIs) and banks;
  • Differences in poverty outreach are also observed across regions;
  • Not all MFIs have a poverty alleviation mission;
  • MFIs that intend to reach the poor tend to achieve higher poverty outreach.

The study concludes that poverty outreach cannot be taken for granted. Keeping expectations high without sufficient measurement and transparency systems may be risky for an industry depending on its poverty alleviating reputation. Reputation risk can be reduced with better MFI internal measurement systems, independent transparency tools, and investors’ commitment to MFIs that achieve results.