33454 FocusNote NO. 24 JANUARY 2003 IS MICROFINANCE AN EFFECTIVE STRATEGY TO REACH THE MILLENNIUM DEVELOPMENT GOALS? BY ELIZABETH LITTLEFIELD, JONATHAN MORDUCH, AND SYED HASHEMI Introduction The United Nations' Millennium Development Goals (MDGs) have galvanized the de- velopment community with an urgent challenge to improve the welfare of the world's neediest people. Donor agencies are orienting their programming around the attainment The Focus Note Series is CGAP's primary vehicle for of the MDGs and are mobilizing new resources to reduce hunger and poverty, eliminate dissemination to governments, HIV/AIDS and infectious diseases, empower women and improve their health, educate donors, and private and financial all children, and lower child mortality.1 institutions on best practices in microfinance. The MDGs are framed as concrete outcomes in the areas of nutrition, education, health, gender equity, and environment. Thus work in these specific areas will be a large Please contact, CGAP with comments, part of any development strategy driven by the MDGs. But decades of experience has contributions, and requests shown that progress in these areas is powerfully affected by other factors in the broader to receive other notes context, such as a functioning government, physical security, economic growth, and in the series. basic infrastructure (for example, transportation). This paper reviews the mounting body 1818 H Street, NW of evidence showing that the availability of financial services for poor households Washington DC 20433 ("microfinance") is a critical contextual factor with strong impact on the achievement of Tel: 202 473 9594 the MDGs. Fax: 202 522 3744 Microfinance, and the impact it produces, go beyond just business loans. The poor use E-mail: financial services not only for business investment in their microenterprises but also to cgap@worldbank.org invest in health and education, to manage household emergencies, and to meet the wide Web: variety of other cash needs that they encounter. The range of services includes loans, sav- www.cgap.org ings facilities, insurance, transfer payments, and even micro-pensions. Evidence from the millions of microfinance clients around the world demonstrates that access to financial services enables poor people to increase their household incomes, build assets, and re- duce their vulnerability to the crises that are so much a part of their daily lives. Access to financial services also translates into better nutrition and improved health outcomes, such as higher immunization rates. It allows poor people to plan for their future and send more 1The Millennium Development Goals are: (1) eradicate extreme poverty and hunger; (2) achieve universal primary education; (3) promote gender equality and empower women; (4) reduce child mortality; (5) improve maternal health; (6) combat HIV/AIDS, malaria, and other diseases; (7) ensure environmental sustainability; and (8) develop a global partnership for development. Building financial systems that work for the poor of their children to school for longer. It has made Eradicating Poverty women clients more confident and assertive and thus Microfinance allows poor people to protect, diversify, better able to confront gender inequities. and increase their sources of income, the essential Microfinance clients manage their cash flows and path out of poverty and hunger. The ability to bor- apply them to whatever household priority they judge row a small amount of money to take advantage of a most important for their own welfare. Thus microfi- business opportunity, to pay for school fees, or to nance is an especially participatory and non-paternal- bridge a cash-flow gap can be a first step in breaking istic development input. Access to flexible, convenient, the cycle of poverty. Similarly poor households will and affordable financial services empowers and equips use a safe, convenient savings account to accumulate the poor to make their own choices and build their enough cash to buy assets such as inventory for a small way out of poverty in a sustained and self-determined business enterprise, to fix a leaky roof, to pay for way. health care, or to send more children to school. Microfinance is unique among development inter- Microfinance also helps safeguard poor households ventions: it can deliver these social benefits on an against the extreme vulnerability that characterizes ongoing, permanent basis and on a large scale. Many their everyday existence. Loans, savings, and insurance well-managed microfinance institutions throughout help smooth out income fluctuations and maintain the world provide financial services in a sustainable consumption levels even during lean periods. The way, free of donor support. Microfinance thus offers availability of financial services acts as a buffer for sud- the potential for a self-propelling cycle of sustainability den emergencies, business risks, seasonal slumps, or and massive growth, while providing a powerful im- events, such as a flood or a death in the family, that pact on the lives of the poor, even the extremely poor. can push a poor family into destitution. Evidence shows that this impact intensifies the longer Various studies, both quantitative and qualitative, clients stay with a given program, thus deepening the document increases in income and assets and decreases power of this virtuous cycle. in vulnerability of microfinance clients.3 Below are Unfortunately poor people in most countries have findings from some of the more reliable studies. virtually no access to formal financial services. Their informal alternatives, such as family loans, savings 2Credible measurement of the impact of financial services is challenging. clubs, or moneylenders, are usually limited by amount, Correlation does not prove causality. For example, merely showing that rigidly administered, or available only at exorbitant in- clients in one village are better off than those in another village does not prove that the financial services caused them to be better off: it is possi- terest rates. The challenge ahead is to ensure access to ble, after all, that the financial services only attracted or selected clients financial services for the poor majority. who were likely to be better off in the first place, even if they had not This note reviews the evidence on the impact of mi- received the service. Studies that do not deal with biases have little power to prove causality. Few studies include fully rigorous controls for selec- crofinance as it relates to the attainment of the tion biases, but all of the studies cited in this paper have addressed this is- MDGs.2 Specifically it assesses impact in the areas of sue by trying to select control groups whose observed characteristics were eradicating poverty, promoting children's education, comparable except for their participation in microfinance. The authors believe that the general pattern of results sheds valid light on the question improving health outcomes for women and children, of impact--that is, does availability of financial services for the poor and empowering women. Finally, the note addresses actually cause improvements in the achievements of MDGs? 3 the feasibility of reaching significant numbers of the A few studies have failed to find positive impacts from microfinance and in rare cases have identified a negative impact. However, the frequency absolute poor with financial services on a sustainable of such outcomes has been too low to cast much doubt on the generally basis and on a massive scale. favorable conclusion indicated by the bulk of the evidence. 2 Eradicating Poverty (continued) microenterprise profits to pay for major social events Barbara MkNelly and Chris Dunford report rather than go into debt to meet such obligations.9 that the incomes of two-thirds of CRECER In 1997­99, there was a downward trend in food (Bolivia) clients had increased after joining the expenditures in Zimbabwe. This was probably a program.4 Moreover clients reported "consumption cash-management strategy to cope with the rising smoothing" over the year as a result of diversifying cost of living. Participation in the Zambuko Trust, income sources and purchasing food in bulk. Eighty- however, led to a positive impact on the six percent of clients said their savings had increased; consumption of high protein foods (meat, fish, 78 percent did not have any savings prior to program chicken, and milk) for extremely poor client participation.5 households.10 In another study of Freedom from Hunger clients A detailed impact assessment study of BRAC in in Ghana, MkNelly and Dunford found that clients Bangladesh suggested that members who stayed in had increased their incomes by $36 compared to the program for more than four years increased $18 for non-clients.6 Clients had also significantly household expenses by 28 percent and assets by 112 diversified their income sources. Eighty percent of percent.11 Another analysis of household level data clients had secondary sources of income versus 50 demonstrated that access to financial services percent of non-clients. In Indonesia borrowers increased their incomes by 4Barbara MkNelly and Christopher Dunford, Impact of Credit with Edu- 12.9 percent compared to increases of 3 percent in cation on Mothers and Their Young Children's Nutrition: CRECER control-group incomes.7 Another study on Bank Credit with Education Program in Bolivia, Freedom from Hunger Research Paper No. 5 (Davis, Calif.: Freedom from Hunger, 1999). Rakyat Indonesia borrowers on the island of 5Anton Simanowitz with Alice Walters, "Ensuring Impact: Reaching the Lombok in Indonesia reports that the average Poorest while Building Financially Self-Sufficient Institutions, and Showing incomes of clients had increased by 112 percent and Improvement in the Lives of the Poorest Women and Their Families," in Pathways out of Poverty: Innovations in Microfinance for the Poorest Families, that 90 percent of households had moved out of ed. Sam Daley-Harris (Bloomfield, Conn.: Kumarian Press, Inc., 2002). poverty.8 6Barbara MkNelly and Christopher Dunford, Impact of Credit with Edu- cation on Mothers and Their Young Children's Nutrition: Lower Pra Rural A study of SHARE clients in India documented Bank Credit with Education Program in Ghana, Freedom from Hunger that three-fourths of clients who participated in the Research Paper No. 4 (Davis, Calif.: Freedom from Hunger, 1998), as reported in Analysis of the Effects of Microfinance on Poverty Reduction, by program for longer periods saw significant Jonathan Morduch and Barbara Haley (prepared by RESULTS Canada improvements in their economic well-being (based for the Canadian International Development Agency, November 2001). on sources of income, ownership of productive 7Joe Remenyi and Benjamin Quinones Jr., eds., Microfinance and Poverty Alleviation: Case Studies from Asia and the Pacific (New York: Pinter assets, housing conditions, and household Publishers, Ltd., June 2000), 79, 131­34; 253­64. dependency ratio) and that half of the clients 8Panjaitan-Drioadisuryo, D.M. Rositan, and Kathleen Cloud, "Gender, graduated out of poverty. There was a marked shift Self-Employment, and Microcredit Programs: An Indonesian Case Study," Quarterly Review of Economics and Finance 39 (1999). in employment patterns of clients--from irregular, 9Reported in Simanowitz, "Ensuring Impact" (2002). low-paid daily labor to diversified sources of 10Carolyn Barnes, Microfinance Program Clients and Impact: An Assess- earnings, increased employment of family members, ment of Zambuko Trust, Zimbabwe, USAID-AIMS Paper (Washington, D.C.: 2001). and a strong reliance on small business. Over half of 11S. Mustafa, et al, Beacon of Hope: An Impact Assessment of BRAC's Rural SHARE clients indicated that they had used their Development Programme (Dhaka, Bangladesh: BRAC, 1996). 3 Eradicating Poverty (continued) To support this priority, many microfinance pro- enabled BRAC clients to reduce their vulnerability grams are developing new credit and savings products through smoothing consumption, building assets, specifically tailored to school expenses. and receiving services during natural disasters.12 There have been a few studies on microfinance and its impact on schooling. A comprehensive study of microfinance conducted by the World Bank in the early 1990s on three of the A longitudinal study in a BRAC area in largest programs in Bangladesh--Grameen Bank, Bangladesh found that basic competency in reading, BRAC, and RD-12--found that female clients writing, and arithmetic among children 11­14 years increased household consumption by 18 takas for old in member households had increased from 12 every 100 takas borrowed, and that 5 percent of percent of children at the start of the program in clients graduated out of poverty each year by 1992 to 24 percent in 1995. In non-member borrowing and participating in microfinance households, only 14 percent of children could pass programs.13 More importantly households were able the education competency tests in 1995.15 to sustain these gains over time. There were also Helen Todd's 1996 ethnographic study of a spillover effects in the village economy. Average Grameen village points to the much higher levels of rural household incomes in program villages schooling of Grameen children compared to increased even for non-program households. One of children of non-members. Almost all of the girls in the programs even influenced village wage rates. Grameen households had some schooling compared Increases in self-employment and subsequent to 60 percent of girls in the comparison group; 81 withdrawals from informal labor pools led to a 21 percent of Grameen boys went to school compared percent increase in wages in the program villages. to 54 percent in non-Grameen households. This is An important, earlier study of the Grameen Bank also substantiated in the World Bank study in 1998, also found statistical evidence of economic welfare.14 which found higher levels of schooling for children The incomes of Grameen members were 43 percent of all credit program participants and statistically higher than incomes of control groups in non- significant higher rates of schooling for girls in program villages and 28 percent higher than non- Grameen households.16 members in Grameen villages. Grameen members were also able to rely more on savings and their own funds to cope with crises rather than borrow from moneylenders. Wage rates in program villages 12Hassan Zaman, Assessing the Poverty and Vulnerability Impact of Micro- increased as well. Credit in Bangladesh: A Case Study of BRAC (Washington, D.C.: World Bank, 2000). 13Shahidur Khandker, Fighting Poverty with Microcredit: Experience in Promoting Children's Education Bangladesh (New York: Oxford University Press, Inc., 1998). 14 One of the first things poor people all over the world M. Hossain, Credit for the Alleviation of Rural Poverty: The Grameen Bank in Bangladesh, Research Report No. 55 (Washington, D.C.: IF- do with new income from microenterprise is invest in PRI, 1988). their children's education. Studies show that children 15A.M.R. Chowdhury and A. Bhuiya, "Do Poverty Alleviation Pro- of microfinance clients are more likely to go to school grammes Reduce Inequity in Health: Lessons from Bangladesh," in Poverty Inequity and Health, ed. D. Leon and G. Walt (Oxford: Oxford and stay in school longer. Student drop-out rates are University Press, 2001). much lower in microfinance-client households. 16Khandker, Fighting Poverty with Microcredit (1998). 4 Promoting Children's Education (continued) Improving Health Outcomes for Women and A Save the Children study on different Children microfinance programs reports that in Honduras Illness is generally the most important crisis for poor clients indicated that participating in the credit and families. Deaths in the family, taking time off from savings program increased their earnings and the work when sick, and health-care related expenses can availability of resources.17 This allowed them to send deplete incomes and savings. They can lead to selling many of their children to school and reduce student assets and indebtedness. For microfinance clients, ill- drop-out rates. ness is often the main reason for failure to repay loans. Households of microfinance clients appear to have An impact study of a microfinance program in better nutrition, health practices, and health outcomes Uganda, conducted for the USAID-AIMS project, than comparable non-client households. Larger and showed that client households invest more in more stable incomes generally lead to better nutrition, education than non-client households. Micro- living conditions, and preventive health care. In- enterprise revenues were important in financing the creased earnings and financial management options education of their children for over half of the client also allow clients to treat health problems promptly households. Clients also were significantly more rather than waiting for conditions to deteriorate. likely than non-clients to pay school charges for a Along with financial services, some microfinance non-household member. This has implications for institutions also provide health education, usually in keeping orphans and the children of households the form of short, simple preventive care messages on affected by HIV/AIDS in school.18 immunization, safe drinking water, and pre-natal and The AIMS study of Zambuko Trust clients in post-natal care. Some programs provide credit prod- Zimbabwe found positive impacts on enrollment ucts for water, sanitation, and housing. A growing ratios for boys 6­16 years old from 1997­99. Over number of microfinance institutions have forged part- the same period, school-enrollment ratios for girls nerships with insurance providers to offer health 6­16 declined, who possibly dropped out of school insurance to clients. in response to a need to care for the sick. The data The specific evidence on health outcomes for for repeat borrowers suggested that cumulative loans women and children in program households, though increase the likelihood that clients' children aged sparse, does point to a strong positive impact. 6­21 would stay in school.19 CRECER in Bolivia provides basic health School enrollment among working-class children education along with financial services. An impact in Ahmedabad was 55 percent for girls and 65 study shows that clients had better breast-feeding percent for boys 11­17 years of age in 1997. Over the period 1997­99, borrowing from SEWA Bank had a positive impact on boys' secondary-school 17Marcus, et al, Money Matters (1999). 18Caroline Barnes, Gary Gaile, and Richard Kimbombo, Impact of Three enrollment rates, which rose to 70 percent. Microfinance Programs in Uganda, USAID-AIMS Paper (Washington, However, the relationship of SEWA participation to D.C.: Management of Systems International, 2001). the enrollment of girls at the secondary-school level 19Barnes, Microfinance Program Clients and Impact [Zimbabwe] (2001). 20Martha A. Chen and Donald Snodgrass, Managing Resources, Activities, or of girls and boys at the primary-school level was and Risk in Urban India: The Impact of SEWA Bank (Washington, D.C.: weak.20 AIMS, 2001). 5 Improving Health Outcomes (continued) Another survey of microfinance clients in practices, were more likely to give rehydration Bangladesh indicated that rates of contraceptive use therapy to children with diarrhea, and had higher were significantly higher for Grameen clients (59 rates of DPT immunization for their children.21 percent) than for non-clients (43 percent).26 Similar findings of increased contraceptive use were reported A similar study in Ghana found that Freedom from in a later study by Mizanur Rahman and Julie Hunger clients had better breast-feeding practices, DaVanzo.27 This is generally due to greater and their one-year-old children were healthier than awareness of contraceptive programs gained by non-client children in terms of weight-for-age and attending group meetings and from increased height-for-age. Clients also showed significant mobility that allows women to seek out such services. positive changes in a number of health practices-- There are no studies that specifically address the breast-feeding immediately after birth (so newborns link between microfinance and improved access to safe get colostrum), introducing liquids and first foods drinking water and sanitation. However, there is good to infants, and giving rehydration therapy to evidence that increased earnings, stemming from children with diarrhea.22 access to financial services, lead to investments to im- A study, commissioned by USAID-AIMS, prove housing, water, and sanitation, which in turn reported that clients in the FOCCAS microfinance improve health outcomes. Many microfinance pro- program in Uganda, who received health care grams provide loans tailored to financing tube-wells instructions on breastfeeding, preventive health, and and toilets. Other programs, such as SEWA in India, family planning, had much better health-care provide loans to upgrade community infrastructure practices than non-clients. Ninety-five percent of (including tap water, toilets, drainage, and paved clients engaged in some improved health and roads). Partnership between microfinance programs nutrition practices for their children compared to 72 and private infrastructure providers is a promising percent of non-clients. Thirty-two percent of clients option, given the limited success by governments to had tried at least one AIDS-prevention practice provide water and sanitation to large numbers of poor compared to 18 percent for non-clients.23 people and the high initial investments that deter private provision of such services to poor people. A comprehensive longitudinal study of BRAC clients found that fewer members suffered from severe malnutrition (relative to the control group), 21 and more importantly, the extent of severe MkNelly and Dunford, Impact of Credit with Education [Bolivia] (1999). 22MkNelly and Dunford, Impact of Credit with Education [Ghana] (1998). malnutrition declined as the length of membership 23Barnes, et al, Impact of Three Microfinance Programs in Uganda (2001). increased.24 24Chowdhury and Bhuiya, "Do Poverty Alleviation Programmes Reduce Inequity in Health" (2001). In Bangladesh a World Bank study showed that a 25Mark M. Pitt, et al, "Credit Programs for the Poor and the Health Status 10-percent increase in credit to women was of Children in Rural Bangladesh," International Economic Review, forth- coming. associated with a 6.3-percent increase in mid-arm 26S.R. Schuler and S.M. Hashemi, "Credit Programs, Women's Empower- circumference of daughters. Mid-arm circumference ment, and Contraceptive Use in Rural Bangladesh," Studies in Family of sons also increased, though by a smaller amount. Planning 25, no. 2 (1994). 27Mizanur Rahman, Julie DaVanzo, and Abdur Razzaque, Fertility Transi- There was also a statistically significant positive tion, Contraceptive Use, and Abortion in Rural Bangladesh: The Case of effect on height-for-age for both boys and girls.25 Matlab (Washington, D.C: Futures Group International, February 2000). 6 Empowering Women Participants in Ghana played a more active role in Microfinance programs have generally targeted women community life and community ceremonies, while as clients. Women often prove to be more financially participants in Bolivia were actively involved in local responsible with better repayment performance than governments.29 men. Also it has been shown that women are more A survey of 1300 clients and non-clients in likely than men to invest increased income in the Bangladesh showed that credit-program participants household and family well-being. Perhaps most im- were significantly more empowered than non-clients portantly, access to financial services can empower on the basis of their physical mobility, ownership women to become more confident, more assertive, and control of productive assets (including more likely to participate in family and community homestead land), involvement in decision making, decisions, and better able to confront systemic gender and political and legal awareness. This inequities. But such empowerment is by no means empowerment increased with duration of automatic--gender-related issues are complex. Appro- membership, suggesting strong program influence. priate program design can have a strong, positive effect The study also found, in some cases, that program on women's empowerment, resulting in women own- participation led to an increase in domestic violence. ing more assets, having a more active role in family de- However, over time men and families became more cisions, and increasing investment in family welfare. accepting of women's participation, which Microfinance programs from different regions eventually led to a decrease in violence.30 report increasing decision-making roles of women In her study, Naila Kabeer finds that in clients. The Women's Empowerment Program in microfinance programs changes occurred at a Nepal found that 68 percent of its members were personal level in the form of increased self-worth. At making decisions on buying and selling property, the level of the household, she finds that women's sending their daughters to school, negotiating their increased contribution of resources led, in a great children's marriages, and planning their family. majority of cases, to declining levels of tension and These decisions traditionally were made by violence. Women often reported feeling an increase husbands. World Education, which combines in affection and consideration within the household education with financial services, found that women with longer program membership.31 were in a stronger position to ensure female children had equal access to food, schooling, and medical Political empowerment of microfinance clients, in care. TSPI in the Philippines reported that program terms of participation in political mobilization or participation increased the percentage of women who were principal household-fund managers from 33 percent to 51 percent. In the control group, only 28Susy Cheston and Lisa Kuhn, Empowering Women through Microfinance (New York: UNIFEM, 2002). 31 percent of women were principal fund 29MkNelly and Dunford, Impact of Credit with Education [Ghana] (1998); managers.28 and Impact of Credit with Education [Bolivia] (1999). 30Syed Hashemi, Sidney Schuler, and Ann Riley, "Rural Credit Programs Results of the Freedom from Hunger studies in and Women's Empowerment in Bangladesh," World Development 24, Bolivia and Ghana indicate that program no. 4 (1996): 635-53. 31Naila Kabeer, "Money Can't Buy Me Love": Re-evaluating Gender, Credit, and participation led to increased self-confidence in Empowerment in Rural Bangladesh, IDS Discussion Paper No. 363 (Brighton, women and improved status within the community. UK: Institute of Development Studies, University of Sussex, 1998). 7 Empowering Women (continued) of BRAC's clients live on less than one dollar per day running for political office, is not well documented. and own no agricultural land, yet BRAC's return on However, there are many instances of such assets in 2000 was 4.3 percent. Over 70 percent of the occurrences. Women clients of Opportunity clients of SHARE (in India) and CARD (in the Philip- Microfinance Bank in the Philippines have been pines) own no agricultural land, so that most of them elected to the local government. CRECER in can be inferred to live on less than one dollar per day. Bolivia, CSD in Nepal, Grameen and BRAC in In 2001 SHARE's return on assets was 1.1 percent Bangladesh, and World Education, all report clients and CARD's was 3.3 percent. In Cambodia EMT running for local government office and being earned 2.3 percent on assets in 2001, even though half elected. FORA in Russia organized a campaign for of its clients appear to be living in absolute poverty. In democracy in the Russian elections. Members of Nepal two-thirds of Nirdhan's clients live on less than both SEWA and the Working Women's Forum in one dollar per day. Nirdhan's adjusted return on as- India have organized to get better wages and better sets for 2001­02 was 0.4 percent. rights for informal women workers, to resolve More generally, new evidence from the Micro- neighborhood issues, and to advocate for legal Banking Bulletin shows little correlation between the changes. profitability of successful microfinance institutions and their average loan size, a rough proxy for poverty lev- Reaching Those in Extreme Poverty els.33 Of the 62 institutions reporting data that have The Millennium Development Goals include halving reached full financial self-sufficiency, the 18 that tar- the number of those living in absolute poverty--the get the poorest clients (loan size at 20 percent of GDP estimated 1.2 billion people subsisting on less than per capita) average better profitability than the rest. one dollar per day. Does microfinance reach such peo- Programs that target very poor clients perform better ple? Can it do so on a massive scale? than others in terms of cost per borrower, an efficiency The first question is whether it is financially feasi- indicator that neutralizes the effect of smaller loan ble to reach those in absolute poverty. In credit-based sizes. Their efficiency comes from higher productiv- microfinance institutions, poorer clients tend to take ity: they average almost 200 borrowers per staff mem- out smaller loans, and as average loan size gets smaller, ber compared to 140 for institutions that serve a costs seem to be harder to cover. However, innovative broad range of clients and 70 for institutions that serve program design has been able to counteract this cost relatively better-off clients. pressure, enabling a growing number of microfinance A number of microfinance institutions have also institutions to reach the extremely poor and still cover shown that, with strong management and efficient their costs through simplified, cost-effective banking operations, the massive scale required to reach the approaches. ASA in Bangladesh is a pioneer in devel- oping such systems. Banco do Nordeste in Brazil channels many of its transactions through post office 32Financial sustainability measures whether an institution would be prof- itable in a fully commercial environment, adjusting operating revenues networks, dramatically reducing its costs and borrow- down for factors such as inflation, subsidized loan funds, and in-kind do- ers' transaction costs. nations. A growing number of microfinance institutions 33The MicroBanking Bulletin is part of the new Microfinance Information Exchange (the MIX), an information service reporting on almost 200 reach clients living on less than one dollar per day and MFIs, networks, and investment funds, that CGAP incubated over the are financially sustainable.32 In Bangladesh 65 percent past few years and has now spun off. 8 billion people targeted by the MDGs is possible. With tions to lower their costs and reach the very poor prof- its streamlined and formulaic procedures, ASA in itably. Once sustainable, institutions can become a Bangladesh is rolling out new branches for every permanent feature of the financial landscape, growing 1,800 clients. (They added nearly 78,000 new mem- rapidly to reach significant scale without reliance on bers each month in 2002.) As of January 2003, ASA donor funding. had over 2.1 million clients. BRAC, with over 3.6 mil- lion members, recently set up in Afghanistan and after Conclusion--The Role of Microfinance in Meeting only six months in operation already has almost 5,000 the MDGs clients. Acleda and EMT both have more clients than No single intervention can defeat poverty. Poor peo- any other financial institution in Cambodia, with over ple need employment, schooling, and health care. 80,000 clients served by each. In Latin America, Some of the poorest require immediate income Banco do Nordeste, operating in one of the poorest transfers or relief to survive. Access to financial services regions of Brazil with very little donor support, be- forms a fundamental basis on which many of the other came the second largest microfinance operation in essential interventions depend. Moreover, improve- Latin America. In just a few years, they have reached ments in health care, nutritional advice, and education 110,000 clients. Compartamos, a non-bank financial can be sustained only when households have increased institution in Mexico, has nearly doubled the number earnings and greater control over financial resources. of its clients in the past year to become the largest Financial services thus reduce poverty and its effects Latin American program with over 150,000 clients. in multiple concrete ways. And the beauty of microfi- Thus both individual program results and database nance is that, as programs approach financial averages justify the optimism that innovative products sustainability, they can reach far beyond the limits of and methodologies can enable microfinance institu- scarce donor resources. 9 Notes 10 Bibliography Barnes, Carolyn. Microfinance Program Clients livia. Freedom from Hunger Research Paper No. and Impact: An Assessment of Zambuko Trust, 5. Davis, Calif.: Freedom from Hunger, 1999. Zimbabwe. USAID-AIMS Paper. Washington, Morduch, Jonathan, and Barbara Haley. Analysis D.C.: 2001. of the Effects of Microfinance on Poverty Reduction. Barnes, Caroline, Gary Gaile, and Richard Kim- Prepared by RESULTS Canada for the Canadian bombo. Impact of Three Microfinance Programs in International Development Agency, November Uganda. USAID-AIMS Paper. Washington, D.C.: 2001. Management of Systems International, 2001. Mustafa, S., I. Ara, D. Banu, A. Hossain, A. Kabir, Chen, Martha A., and Donald Snodgrass. Man- M. Moshin, A. Ysuf, and S. Jahan. Beacon of aging Resources, Activities, and Risk in Urban In- Hope: An Impact Assessment of BRAC's Rural dia: The Impact of SEWA Bank. Washington, Development Programme. Dhaka, Bangladesh: D.C.: AIMS, 2001. BRAC, 1996. Cheston, Susy, and Lisa Kuhn. Empowering Panjaitan-Drioadisuryo, D.M. Rositan, and Kath- Women through Microfinance. New York: leen Cloud. "Gender, Self-Employment, and Mi- UNIFEM, 2002. crocredit Programs: An Indonesian Case Study," Quarterly Review of Economics and Finance 39 Chowdhury, A.M.R., and A. Bhuiya. "Do Poverty (1999). Alleviation Programmes Re- duce Inequity in Health: Lessons from Pitt, Mark M., Shahidur R. Khandker, Omar Bangladesh." In Poverty Inequity and Health, ed. Haider Chowdhury, and Daniel Millimet. "Credit D. Leon and G. Walt. Oxford: Oxford University Programs for the Poor and the Health Status of Press, 2001. Children in Rural Bangladesh," International Hashemi, Syed, Sidney Schuler, and Ann Riley. Economic Review. Forthcoming. "Rural Credit Programs and Women's Empower- Rahman, Mizanur, Julie DaVanzo, and Abdur ment in Bangladesh." World Development 24, no. Razzaque. Fertility Transition, Contraceptive Use, 4 (1996): 635-53. and Abortion in Rural Bangladesh: The Case of Hossain, M. Credit for the Alleviation of Rural Matlab. Washington, D.C: Futures Group Inter- Poverty: The Grameen Bank in Bangladesh. Re- national, February 2000. search Report No. 55. Washington, D.C.: IFPRI, Remenyi, Joe, and Benjamin Quinones Jr., eds. 1988. Microfinance and Poverty Alleviation: Case Stud- Kabeer, Naila. "Money Can't Buy Me Love": Re- ies from Asia and the Pacific. New York: Pinter evaluating Gender, Credit, and Empowerment in Publishers, Ltd., June 2000. Rural Bangladesh. IDS Discussion Paper No. Simanowitz, Anton, with Alice Waters. "Ensuring 363. Brighton, UK: Institute of Development Impact: Reaching the Poorest while Building Fi- Studies, University of Sussex, 1998. nancially Self-Sufficient Institutions, and Show- Khandker, Shahidur. Fighting Poverty with Micro- ing Improvement in the Lives of the Poorest credit: Experience in Bangladesh. New York: Ox- Women and Their Families." In Pathways out of ford University Press, Inc., 1998. Poverty: Innovations in Microfinance for the Poor- est Families, ed. Sam Daley-Harris. Bloomfield, MkNelly, Barbara, and Christopher Dunford. Im- Conn.: Kumarian Press, Inc. 2002. pact of Credit with Education on Mothers and Their Young Children's Nutrition: Lower Pra Schuler, S.R., and S.M. Hashemi. "Credit Pro- Rural Bank Credit Program with Education in grams, Women's Empowerment, and Contracep- Ghana. Freedom from Hunger Research Paper tive Use in Rural Bangladesh." Studies in Family No. 4. Davis: Calif.: Freedom from Hunger, Planning 25, no. 2 (1994). 1998. Zaman, Hassan. Assessing the Poverty and Vulner- ------ . Impact of Credit with Education on ability Impact of Micro-Credit in Bangladesh: A Mothers and Their Young Children's Nutrition: Case Study of BRAC. Washington, D.C.: World CRECER Credit with Education Program in Bo- Bank, 2000. Focus Note No. 24 This Focus Note was written by Eliz- abeth Littlefield, Director and CEO, CGAP, Washington, D.C.; Jonathan Morduch, Associate Professor, Public Policy and Economics, New York University; and Syed Hashemi, Microfinance Specialist, CGAP, Washington, D.C. Please feel free to share this Focus Note with your colleagues or request extra copies. All CGAP publications are available on the web at www.cgap.org.