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newsletter - English

Microfinance Outreach to the Poorest: A Realistic Objective?

This article from the Asian Development Bank newsletter ‘Finance for the Poor’ identifies three camps of thought on the issue of financial services for the poorest. The different assumptions and arguments of each camp is examined to see if they are valid. The core issue is whether it is realistic to expect that microfinance services can be provided to the poorest on a sustainable and large-scale basis.

This article does give a useful overview of the problems faced in providing financial services for the poorest and makes the crucial point that financial services do not create economic opportunities; they only allow people to take advantage of economic opportunities created by other interventions. The author concludes that to reach the poorest, it is necessary to design appropriate products and innovative delivery mechanisms that can enable financial services to be provided at affordable prices. Strong institutions are also needed, together with adequate investment in social and physical infrastructure.

This is a good quotation which is cited in the article: “Credit should be a lubricant for the engine of feasible and profitable activities; if the lubricant is mistaken for the engine, the borrower may end up in a debt trap.”