By Koen Rossel-Cambier, published by Centre Emile Bernheim and Solvay Brussels School, December 2010, 41 pages, available at: http://www.microfinancegateway.org/p/site/m/template.rc/1.9.49256/
This paper examines the current trend toward product diversification by microfinance institutions (MFIs) and explores whether such diversification leads to greater outreach, in particular when combining microcredit with savings and insurance. It analyzes data from 250 MFIs from Latin America and the Caribbean from fiscal year 2006.
Despite recent growth in the sector, microfinance is still only available to a small fraction of the world’s poor. Further, evidence remains mixed on the extent to which microfinance contributes to poverty alleviation. The author proposes that it is important not only to increase the accessibility of loan products but also to respond to a wide variety of financial needs.
The author argues that if poverty alleviation is the mission of MFIs, then performance should be measured not only by organizational growth, but also by determining whether an MFI’s services are relevant and useful to the poor. “Social performance assessment” is the process by which an organization measures its performance in terms of its social objectives, as well as to those of key stakeholders. Various MFI promoters have developed tools to monitor the social performance of MFIs including Imp-Act, the SEEP Network/Argidius Foundation, CGAP (Consultative Group to Assist the Poor), United States Agency for International Development (USAID) and ACCION International. Each combines elements of the poverty-alleviation approach, where there is a focus on the impact of credit and other products on clients, and self-sustainability, where the focus is profitability.
The paper puts forth and tests three hypotheses: (1) combining multiple financial products enhances the breadth of outreach of MFIs, as measured by the number of people served, (2) combining microfinance products does not enhance outreach to poorer people and (3) combining financial products can sharpen certain exclusionary gender-sensitive mechanisms.
The author concludes that combining multiple financial products does enhance the breadth of outreach of MFIs. MFIs with a variety of products, including insurance and savings products, have more clients than those offering credit only. There was no discussion of whether a casual relationship can be established between these variables.
The analysis also suggests that MFIs offering savings tend not to reach out as much to poorer or socially excluded clients. However, the paper does not find evidence of a similar adverse affect of insurance offerings on the depth of poverty outreach.
Finally, the author finds that there is a negative correlation between offering savings and the depth of outreach to women.
By Witt Gatchell, Research Associate
About SEEP:
The Small Enterprise Education and Promotion (SEEP) Network, founded in 1985, connects microenterprise practitioners from around the world to develop practical guidance and tools, build capacity, and help set standards to advance its mission of sustainable income in every household. Its members are active in 180 countries.
About CGAP (Consultative Group to Assist the Poor):
Housed at the World Bank Group, CGAP (Consultative Group to Assist the Poor) is an independent policy and research center dedicated to facilitating the provision of financial access to poor people worldwide. CGAP is supported by approximately thirty development agencies and private foundations. Its mission is to provide market intelligence, to promote standards and to offer advisory services to governments, microfinance providers, donors and investors.
About United States Agency for International Development (USAID):
The United States Agency for International Development (USAID) is a government agency that provides international economic and humanitarian assistance. It focuses on areas such as economic growth, agriculture and trade, global health, democracy, conflict prevention, and humanitarian assistance. Under the Development Credit Authority (DCA), it provides partial credit guarantees that cover up to 50 percent of defaults on loans made by private financial institutions to institutions that lend to underserved borrowers.
About ACCION International:
ACCION International is a private, US based nonprofit organization with the mission of giving people the financial tools necessary for poverty alleviation, such as microenterprise loans, business training and other financial services. ACCION’s partner microfinance institutions provide loans to men and women entrepreneurs in 23 countries in Latin America, Asia, Africa and the United States. As of 2009, ACCION’s network serves 3.3 million active clients and has a gross loan portfolio of USD 31.8 billion.
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