Introduction

The microfinance revolution has changed attitudes towards helping the poor in both Asia and Latin America, and in some countries has provided substantial flows of credit, often to very low-income groups or households, who would normally be excluded by conventional financial institutions. Much has been written on the range of institutional arrangements pursued in different organizations and countries, and in turn a vast number of studies have attempted to assess the outreach and poverty impact of such schemes. However, in the academic development community there is a recognition that perhaps we know much less about the impact of these programs than might be expected given the enthusiasm for these activities among donor and policy-making circles. To quote a recent authoritative volume on microfinance:

MFI field operations have far surpassed the research capacity to analyze them, so excitement about the use of microfinance for poverty alleviation is not backed up with sound facts derived from rigorous research. Given the current state of knowledge, it is difficult to allocate confidently public resources to microfinance development. (Zeller and Meyer 2002).

This is a very strong statement of doubt. It in part reflects a lack of accurate data, but also in part methodological difficulties associated with assessing exactly what proportion of income and other effects on the beneficiaries of micro credit can actually be attributed to the programs themselves. Here we compare poverty impact studies from Asia and Latin America. In particular we examine evidence on three specific issues:

• The success of microfinance programs in reaching the core poor;
• The effectiveness of microfinance initiatives in pulling households out of poverty;
• The cost effectiveness of microfinance as a poverty targeting tool.

These are very basic questions, and the fact that they can still be posed reflects the extent of uncertainty in the literature. Since a number of other surveys are also available, we give most attention to evidence produced in the last three or four years¹ and highlight similarities and differences in microfinance as it has developed in Asia and Latin America.

The paper is organized as follows. In Section 2, we provide a brief overview of some of the distinguishing characteristics of the microfinance industry in Asia and Latin America. Section 3 discusses the potential for microfinance to combat poverty and methodological issues relating to assessing its success in doing so, and Section 4 goes on to survey the evidence from selected research studies on this point. Section 5 addresses the question of cost effectiveness. Finally we draw some brief conclusions.

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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