Conventional microfinance programs often fail to serve the very poor because of the perceived higher costs and greater risks of doing so. However, reaching ever larger numbers of very poor clients has always been a fundamental social objective of microfinance. As a result, many policy makers, donors, investors, and financial institutions see achievements in outreach to poorer clients as an integral element of any social performance assessment. The U.S. government has mandated that half of its microenterprise funding be targeted specifically to the poorest.
This section highlights successful programs that have pushed the frontier to serve the very poor, provides information on U.S. government legislation and the efforts currently underway to assess economic levels of clients, and describes the targeting tools many MFIs use to ensure they focus on the very poor. This section also documents the successful use of CGAP's Poverty Assessment Tool to rigorously determine whether institutions are actually reaching the very poor.
The following are tools MFIs can use to identify clients who are most in need.
Housing Index
An index that uses the structure of the house, and sometimes the compound, to differentiate between economic levels of households and identify those who are poor.
Participatory Wealth Ranking (PWR)
A ranking by community members of the relative poverty or wealth of households using perceptions and criteria defined by community members themselves.
Means Test
A list of a small number of indicators collected through simplified household poverty surveys that are combined to create an index that provides a reliable assessment of the poverty level of an individual household.
Geographic Targeting
The strategy of providing financial services to poor, vulnerable and excluded people in remote, unserved areas typically with low levels of infrastructure.
CGAP Poverty Assessment Tool
The CGAP Poverty Assessment Tool provides transparency on the depth of outreach of MFIs. Using a multidimensional poverty index, it provides rigorous data on client poverty levels relative to people in the same community and allows for comparisons between MFIs and across countries. The tool involves a survey of 200 randomly selected clients and 300 nonclients, takes about four months to complete and costs around $10,000. Field tests were successfully completed on seven MFIs in seven countries. For a review of the tool by Imp-Act, click here.