Conclusions

Despite the extensive spread of micro finance, research studies on the actual impact of MFIs are often more ambivalent about its impact than is the aid community. In part this reflects the methodological problems of establishing appropriate statistical controls and in part no doubt also the range of variation found in practice in the way in which micro finance operates. Our view is that, despite the difficulties, more good poverty impact studies are important to sharpen understanding of its role as an anti-poverty tool, to assess its impact in different environments and to shape the debate on ways forward for MFIs.

Amongst practitioners there is widespread acceptance of the view that it is both necessary to diversify the products of micro finance and adapt them to local circumstances. Any simple replication of formulae successful elsewhere is rightly treated with suspicion. However the evidence surveyed here suggests that the conclusion from the early literature, that whilst micro finance clearly may have had positive impacts on poverty it is unlikely to be a simple panacea for reaching the core poor, remains broadly valid. Reaching the core poor is difficult and some of the reasons that made them difficult to reach with conventional financial instruments mean that they may also be high risk and therefore unattractive microfinance clients.

There has been an extensive debate, which we do not touch on here, on the financial sustainability of MFIs. We would simply make the point that just because an institution needs a subsidy to cover its costs in itself is not a reason for not supporting the institution. The issue should be, what benefits in terms of income gains for the poor can be achieved with the subsidy and how does the ratio of subsidy to benefits compare with that for other interventions. Detailed cost effectiveness studies are rare and those that are available show both high and low scores for MFIs in the same country. Hence there is a need to continually improve design and outreach and to see MFIs as part of the package for targeting the poor, rather than the whole solution. Our view is that despite the difficulties, poverty impact studies of MFIs can provide important information and that continued efforts should be made to sharpen understanding of the impacts of different forms of MFI activity on the poor, including their cost-effectiveness.

The views expressed in this paper are the views of the author/s and do not necessarily reflect the views or policies of the Asian Development Bank Institute nor the Asian Development Bank. Names of countries or economies mentioned are chosen by the author/s, in the exercise of his/her/their academic freedom, and the Institute is in no way responsible for such usage.

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Comment(s)

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1. altafsamo
   (posted 27 March 2008 / 01:42:42 PM)
   
   I think micro finance if implemented in true spirit can do wonders but in countries like Pakistan the impact has not been so impressive although several studies has shown its positive impact. On the ground realities are very different and these need to be addressed by these multilateral donor agencies.
   Most of the loans are not properly utilized.
   Special emphasis is needed to be given on the capacity building of the prospective borrower. Let the borrower train to catch fish themselves by building capacity to utilize the borrowed amount for investment that will benefit them in long run. This will help decrease poverty.
2. muneeb seyal
   (posted 09 November 2007 / 08:42:14 PM)
   
   Well, I guess microfinance is doing a great work.
   Normally banks are not interested in providing funds to poor people.
   It's proved in history that poor are more honest than the rich.
3. Eric
   (posted 26 September 2007 / 10:35:57 PM)
   
   Whereas Micro finance holds the key to poverty education, it is not just the provision of the financial services that matters, information on where to invest and manage the business is equally needed.
4. Syed Shah
   (posted 22 April 2007 / 12:50:06 AM)
   
   Well I think micro finance can play a power full role in poverty alleviation, nature conservation and biodiversity conservation because it has the potential to diversify the source of income for the poor people and hence can result in reducing the pressure on exploitation of natural resources.