MICROBANKING BULLETIN - Microfinance Information Exchange

From the ChairThe 5 th issue of The MicroBanking Bulletin focuseson microfinance programs that reach poorer clients.We are delighted to present a number ofcontributions about MFIs fulfilling their dualobjectives: to serve relatively poorer clientssustainably. Their task is undoubtedly a difficultone. In many countries they work in rural areas.Many of their clients have a very limited capacity toabsorb increased loan amounts. Often their clientsregard higher rates of interest with great suspicion,complicating the institution’s path to sustainability.The decision to seek out a particularly poor or hardto reach market has fundamental implications forthe financial structure of MFIs. These programs,referred to in the Bulletin as Low-end MFIs, aredifferent than organizations that serve a broadermarket. Comparisons between institutions need totake into account the markets that they are serving.Unfortunately, we have not yet found whollysatisfying indicators that can be easily gathered,unambiguously interpreted, and readily comparedacross regions to measure the relative poverty of anMFI’s clients.To define our peer groups, the Bulletin uses twoproxies for client poverty: 1) Average LoanBalance (ALB) (total outstanding portfolio / numberof active borrowers) and 2) Depth (average loanbalance as a percent of GNP per capita). 1 While farfrom perfect, especially in fast growing programsthat utilize a strongly incremental approach tomicrolending, these indicators are among the bestavailable in expressing something about absoluteand relative poverty. While we would not want toinfer much about the difference between anoutstanding balance of US US$200 and US$300,there is an important difference between anaverage loan balance US$50 and US$500.An important challenge facing the microfinanceindustry is to come up with more satisfyingindicators of depth of outreach. We invite readersto send us suggestions for other variables we mightconsider in defining our peer groups that capturethe spirit of maximizing outreach.In our first Feature Article, “Reassessing theFinancial Viability of Village Banking …”, GaryWoller examines the prejudice that village bankingcannot be financially viable. In cooperation with the1 The definitions for all of the indicators presented in TheMicroBanking Bulletin can be found on page 39.SEEP Poverty Lending Working Group, heconsiders evidence from nine leading villagebanking institutions that participate in TheMicroBanking Bulletin and agreed to make theirdata public. He shows that village bankingprograms can perform as well as MFIs that useother lending techniques. Woller also finds thatdifferent programs achieve their overall resultsthrough distinct combinations of productivity andincome variables. He concludes with a call todevelop standards by which village bankingprograms can be compared to each other on theirown terms. To that end, the Bulletin provides acomparison of performance by lending methodology(see Tables A and B).Kathleen Stack and Didier Thys present theexperience of Freedom From Hunger, an NGO thatsupports programs that combine microcredit withlow-cost, high-impact education sessions innutrition, health and better business. Its innovativeapproach seeks to reduce delivery costs bypartnering with credit unions in a number ofcountries. This approach allows the very poor to beserved through an institution that already has amarket presence, which reduces delivery costs andenhances financial performance. This articleillustrates a creative way to break old paradigms inthe quest to fulfill the dual objectives of outreachand sustainability.In the Commentary section, we are pleased topresent an interview with David Gibbons ofCASHPOR, who discusses the network’s evolutionover the past five years. David highlights some ofthe unique features of working with poverty focusedprograms in Asia: the fact that the poor tend to workas agricultural laborers, the general resistance ofpolicy makers to allow MFIs to charge ‘high enough’interest rates, the regulatory barriers to savingsmobilization, and access to funding that would allowmore programs to scale up. In anotherCommentary, Beth Rhyne takes issue with DaveRichardson over the potential of MFIs to engage ineffective “self-governance”. Dave’s article on creditunions appeared in the last issue of the Bulletin.This issue includes four Case Studies. GeethaNagarajan, of the Bulletin’s Editorial Staff, preparedcases of two Asian MFIs. We also have two casestudies written by persons close to the institutions,which we have titled “In Their Own Words” toindicate this distinction.MICROBANKING BULLETIN, SEPTEMBER 2000 1