Microfinance needs to better target poor, says ADB
KATHMANDU, OCT 20:
Microfinance needs to reach more of the poor in Asia and the Pacific, but in a financially sustainable way, according to a new study from Independent Evaluation at the Asian Development Bank (ADB).
The study, Microfinance Development Strategy 2000: Sector Performance and Client Welfare, emphasises the twin goals of microfinance — reaching the poor and being financially sustainable. With microfinance becoming increasingly commercialised in the region, the study stressed on the role of the government and agencies such as ADB in addressing the financial needs of the poor, while at the same time ensuring the institutional sustainability of microfinance providers.
“Despite the increasing popularity of microfinance in recent years, expanding the access of poor households to institutional financial services remains a great challenge to governments and development agencies,” said director general of Independent Evaluation Vinod Thomas.
The study revealed that the penetration of microfinance among the poor in Asia and the Pacific remains low. As of the end of 2010, some 20 per cent of the population living below the poverty level of $ 1.25 per day had direct access to microfinance services in 21 developing countries receiving ADB microfinance support. But the level was below ADB’s goals.
Microfinance is seen in the region as an important means to helping low-income households take advantage of economic opportunities and improve living standards. However, the degree to which it actually reaches the poor and improves their welfare is under public scrutiny.
The ADB study stated that for microfinance to have a greater impact on reducing poverty in the region, it needs to better target the poor and focus more on educating them in using basic financial services, as well as more effectively link microfinance services to complementary pro-poor interventions.
ADB is one of the largest providers of microfinance support in the region. Between 2000, when ADB launched its microfinance development strategy, and 2010, it approved nearly $ 2.8 billion through 88 loans, grants, technical assistance operations, and private sector investments.
The main thrust of ADB’s interventions has been to ensure access to financial services for a majority of poor and low-income households and their micro enterprises by focusing
on programmes and strategies to integrate microfinance into mainstream financial systems.Over two-thirds of ADB’s microfinance portfolio supported the creation of an enabling policy environment for microfinance in recipient countries.
ADB’s support was relevant and responsive to the needs of countries for developing microfinance. It performed reasonably well in easing regulatory and policy constraints, and this worked most effectively in countries where the “government is committed to reforms, and where institutions, policies, and operating framework have been allowed to flourish,” the report said.
About 2.7 billion people worldwide, or 70 per cent of the adult population in the world’s developing countries, have no access to formal financial services, such as savings or checking accounts. They represent a key and still largely untapped market segment for financial inclusion.
“Improvements in the policy environment and integrating microfinance in the formal financial sector do not automatically improve outreach to the poor. Deliberate and innovative approaches are needed to benefit more people currently not reached by traditional financial institutions,” Thomas added.
One area that shows promise is combining access to financial services with livelihood programmes, food aid, skills training and asset transfers that help people in extreme poverty to gradually move towards sustainable livelihoods and become credit worthy for commercial microfinance.
Source: THT
