By Larry R. Reed; published by the Microcredit Summit Campaign; 2013; 48 pages; available at: http://stateofthecampaign.org/multimedia/print-version/
This report is the latest iteration of an annual assessment issued by the Microcredit Summit Campaign, a project launched in 1997 by the Results Educational Fund (REF), a US-based nonprofit that seeks to reduce poverty. The report indicates that the number of people living in extreme poverty with access to financial services has declined from 138 million in 2010 to 125 million in 2011, the first decrease since the organization began compiling the report in 1998. The majority of the decline occurred in India and Bangladesh, which together account for 76 percent of microfinance clients that are living in extreme poverty. The report cites several reasons for the drop:
(1) The microfinance downturn in the Indian state of Andhra Pradesh: Overlending, multiple borrowing, and allegations of coercive recovery practices prompted the state government to tighten regulations on microfinance in 2010, making it difficult for microfinance institutions (MFIs) to disburse and recover loans.
(2) Maturing markets: The people living in extreme poverty that still lack access to financial services are often those that live in more remote areas and are costly to reach, slowing the addition of new clients.
(3) Patchy information: MFI data is compiled by country, but lack of accurate mapping of microfinance activity within a country makes it difficult to anticipate which markets are overly concentrated before they overheat and cause MFIs and donors to pull back from the market, decreasing the numbers of clients served in those areas.
(4) Investor wariness: Investors in India and other countries reduced their investments in microfinance while approximately 75 percent of the investment of international microfinance investment vehicles (MIVs) went to countries in Eastern Europe and Latin America, regions that serve approximately 2.6 percent of microfinance clients that are living in extreme poverty.
Other causes cited include donor fatigue, the effects of the global economic crisis and a lack of incentives for MFIs to expend the costs necessary to reach harder-to-access clients.
The report goes on to analyze the impact of technology on microfinance. The growth of electronic payments has helped to limit transaction costs and increased transparency while providing greater outreach to remote clients. Nevertheless, the report notes that the industry still lacks sufficient electronic savings services.
The report also discusses the “psychology of scarcity,” a phrase coined by Professor Eldar Shafir of US-based Princeton University and Professor Sendhil Mullainathan of US-based Harvard University, that suggests how people behave when faced with poverty. The theory states that impoverished people tend to focus on immediate concerns and neglect the long-term, borrow more than they should, be willing to pay high rates and be more distracted in making decisions.
According to the report, an improved understanding of clients can help MFIs better meet the needs of their clients. The report highlights a number of different strategies for addressing client needs:
(1) Fonkoze, a Haitan MFI, classifies clients based on degrees of poverty to offer products and services specific to each group.
(2) Indian MFI Bandhan has a program for people deemed too poor to benefit from mainstream microfinance services that provides a weekly stipend, training and assistance in starting a “livelihood project.”
(4) Equitas, also of India, assigns one socially responsible officer (SRO) per 10 branches in an effort to increase the organization’s understanding of client needs in the area and develop products accordingly.
(5) Each institution of the Center for Agricultural and Rural Development Mutually Reinforcing Institutions (CARD MRI) of the Philippines addresses a single issue such as business training, microinsurance or marketing assistance.
The report concludes with the recommendation that MFIs focus less on institutional growth and more on client needs: “To be effective, the products and services we develop… must address the high levels of vulnerability faced by people living in extreme poverty and must take into account the pressures and challenges these people face as they seek to manage their lives.”
By Nicole Boyd, Research Associate
About Microcredit Summit Campaign
Microcredit Summit Campaign is a project that was launched in 1997 by Results Educational Fund (REF), a nonprofit advocacy group that is based in Washington, DC. The Campaign’s mission is to bring 100 million families above the USD 1.25 daily income threshold of extreme poverty by 2015. As of that same year, The campaign also aims to bring financial and business services to 175 million people living in extreme poverty, especially women.
Sources and Additional Resources
Microcredit Summit Campaign. “Vulnerability: The State of the Microcredit Summit Campaign Report, 2013,” http://stateofthecampaign.org/multimedia/print-version/
MicroCapital. November 18, 2011, “MICROCAPITAL BRIEF: Microcredit Summit Campaign Report: 137 Million People Received Microloans in 2010,” https://www.microcapital.org/microcapital-brief-microcredit-summit-campaign-report-137-million-people-received-microloans-in-2010/
MicroCapital. March 10, 2011, “MICROCAPITAL BRIEF: Microcredit Summit Campaign Releases State of the Microcredit Summit Campaign Report 2011, Reports 128m Poor People Received Microfinance Loans in 2009,” https://www.microcapital.org/microcapital-brief-microcredit-summit-campaign-releases-state-of-the-microcredit-summit-campaign-report-2011-reports-128m-poor-people-received-microfinance-loans-in-2009/
MicroCapital. August 9, 2011, “MICROCAPITAL BRIEF: Industry Players Say Indian Microfinance Institutions Should Not be Crushed Even Though ‘Some MFIs Have Gone on the Wrong Path’,” https://www.microcapital.org/microcapital-brief-industry-players-say-indian-microfinance-institutions-should-not-be-crushed-even-though-“some-mfis-have-gone-on-the-wrong-path”/
MicroCapital Universe Profile: Microcredit Summit Campaign https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Microcredit+Summit+Campaign
MicroCapital Universe Profile: Fonkoze https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Fonkoze
MicroCapital Universe Profile: Bandhan https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Bandhan+Microfinance
MicroCapital Universe Profile: Equitas https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Equitas+Micro+Finance+India+Private+Limited
MicroCapital Universe Profile: Center for Agricultural and Rural Development (CARD) https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Center+for+Agricultural+and+Rural+Development+%28CARD%29+Rural+Bank
Do you know that MicroCapital publishes the MicroCapital Monitor newspaper each month? Find out more at https://www.microcapital.org/products-page/
Similar Posts:
- MICROFINANCE PAPER WRAP-UP: “Impact of Microcredit on Household Consumption and Assets in Nepal;” by Shalik Ram Pokhrel
- SPECIAL REPORT: Leveraging Financial Inclusion to Get Food Security Back on the Increase #EMW2023
- MICROFINANCE EVENT: Invest in Africa Summit; April 16-17, 2024; the Hague, the Netherlands
- MICROFINANCE PAPER WRAP-UP: “Land Titling and Microcredit in Cambodia: Examining the Reality of Hernando de Soto’s ‘Three Steps to Heaven,’” by Milford Bateman
- MICROFINANCE PAPER WRAP-UP: “Gendered Investment Differences Among Smallholder Farmers: Evidence from a Microcredit Programme in Western Kenya,” by Keiji Jindo et al
