The question raised in the title is an important one to the microfinance sector, especially since the Microcredit Summit held in Washington, DC, in 1997. In order to gain more transparency on the depth of poverty outreach, the Consultative Group to Assist the Poorest (CGAP) supported research at IFPRI during 1999 and 2000 to design and test a simple, low-cost operational tool to measure the poverty level of MFI clients relative to nonclients. This policy brief informs about the results from recent case studies on the poverty outreach of four selected microfinance institutions. The case studies were conducted for four MFIs world-wide: MFI A (Central America), MFI B (East Africa), MFI C (Southern Africa), and MFI D (South Asia).Microenterprises Finance. ,Finance Developing countries. ,Financial institutions. ,Finance Southern Africa. ,Finance Central America. ,Finance South Asia. Finance Africa, East. ,

Henry, Carla

Lapenu, Cécile

Sharma, Manohar

Zeller, Manfred

English

Research Papers in Economics

R R U U R R A A L L     F F I I N N A A N N C C I I A A L L     P P O O L L I I C C I I E E S S    
f f o o r r     F F O O O O D D     S S E E C C U U R R I I T T Y Y     o o f f     t t h h e e     P P O O O O R R  
 
 
IFPRI 
 
 
 
 
 
 
 
RESEARCH 
PROGRAM 
MISSION 
The research 
program titled Rural 
Financial Policies 
for Food Security of 
the Poor seeks to 
identify policies and 
institutional 
arrangements that 
help the poor 
integrate themselves 
into sustainable 
savings and credit 
systems in order to 
increase capacity to 
invest, bear risk, and 
preserve livelihoods.
 
FOCUS 
COUNTRIES 
• Bangladesh 
• Cameroon 
• China 
• Egypt 
• Ghana 
• Madagascar 
• Malawi 
• Nepal 
• Pakistan 
 
ABOUT THE 
AUTHORS 
Manfred Zeller is a 
professor at the 
University of 
Goettingen, 
Germany, and a 
former research 
fellow of  FCND at 
IFPRI; Manohar 
Sharma is a 
postdoctoral fellow 
of FCND at IFPRI; 
Cécile Lapenu is a 
member of FCND at 
IFPRI; Carla Henry 
was a consultant for 
this project at IFPRI.
POLICY BRIEF No. 11   •   JULY 2000 
The question raised in the title is an important one to the 
microfinance sector, especially since the Microcredit Summit 
held in Washington, DC, in 1997. In order to gain more 
transparency on the depth of poverty outreach, the Con-
sultative Group to Assist the Poorest (CGAP) supported 
research at IFPRI during 1999 and 2000 to design and test a 
simple, low-cost operational tool to measure the poverty 
level of MFI clients relative to nonclients. This policy brief 
informs about the results from recent case studies on the 
poverty outreach of four selected microfinance institutions 
(for more information, see Sharma et al. 2000). 
 
 
 
 
 
 
 
 
 
 
 
 
 
The case studies were conducted for four MFIs world-
wide: MFI A (Central America), MFI B (East Africa), MFI C 
(Southern Africa), and MFI D (South Asia). In each country, 
300 nonclients and 200 new clients of MFIs were randomly 
selected. The nonclients were used as a comparison group, 
and resided in the operational area of the MFI. On average, 
about six to eight enumerators in each country carried out the 
field research in a time span of four to six weeks. The field 
research cost, including data entry, ranged between 
US$5,000 and US$14,000. The selected four MFIs consti-
tuted a heterogeneous group serving a diverse set of clientele 
and using different approaches to service delivery. A brief 
background of each MFI is provided next and summarized in 
Table 1. 
Founded in 1989, MFI A is the largest microfinance insti-
tution in this Central American country. By 1999, MFI A 
counted 11 branches and served around 14,500 clients, most-
ly in urban and semi-urban locations. The stated objective of 
the MFI is to reach all segments of the population that 
demand financial services for the development of their 
micro-, small-, and medium-scale enterprises. To reach this 
diverse clientele, MFI A offers a range of loan and savings 
products. Loan sizes range from US$20 to several thousand 
dollars. Apart from credit services, a number of savings 
products seek to also address poorer segments of the popu-
lation. MFI A uses an individual loan methodology and does 
not directly employ targeting methods to reach poorer 
clientele. 
An NGO founded in 1981, MFI B, located in Eastern 
Africa, provides loans specifically to women in business. In 
1997 MFI B established four regional offices, all located in 
areas with above average population density and high levels 
of small business activity, and established both urban- and 
rural-based lending groups. MFI B now provides services to 
nearly 17,000 women entrepreneurs. To qualify for MFI B 
services, prospective clients must organize into groups of 
approximately 20 members, guarantee one another and save 
a certain amount each week. In addition, individuals must 
receive a favorable business assessment from both MFI B 
and other group members. 
Operating in a Southern African country, MFI C is a credit 
and savings cooperative founded in 1993. In 1999, MFI C 
counted four branches and 58 local units, serving around 
22,000 members, in both urban and rural locations. As a 
cooperative, MFI C requires its members to purchase shares 
and save for six months before receiving a loan. MFI C uses 
no explicit targeting methods and draws members from all 
segments of the population. MFI C employs an individual 
loan methodology. Since the beginning of the year 1999, 
however, MFI C launched a new program that specifically 
targets poor women. This new program requires that women 
clients form solidarity groups of five members and loans are 
provided without any prerequisite savings. 
MFI D, established in 1989 in a South Asian country, 
provides credit and saving services to a targeted group of 
around 31,000 clients, mainly poor rural women, through a 
network of 19 branch offices in one particular state of the 
country. Eligibility for the program is tested using a house-
hold questionnaire and, following the Grameen Bank meth-
odology, loans are provided without any collateral to clients 
who form groups of five. Clients are also required to make 
weekly contributions to a savings account.  
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE 
2033 K STREET, NW, WASHINGTON, DC 20006-1002 USA 
Web: www.ifpri.org   •   Phone: 1-202-862-5600   •   Fax: 1-202-467-4439   •   Email: ifpri@cgiar.org 
Do Microfinance Institutions Reach the Poorest? 
MANFRED ZELLER, MANOHAR SHARMA, CÉCILE LAPENU, AND CARLA HENRY 
Characteristics of the Selected 
Microfinance Institutions 
All four institutions were found to reach clients that were 
as poor as the poorest third of nonclients residing in the 
operational area of the MFI. However, there were large 
differences in the depth of poverty outreach between the 
MFIs.  
PAGE 2 
 
Do Microfinance 
Institutions Reach 
the Poorest? 
 
- - - - - - - - - - - - - - 
 
 
Table 1. Summary characteristics of case study MFIs 
MFI characteristics 
Case 
study 
MFI  Location 
Year of 
establish-
ment 
Stated 
mission/ 
goals 
Number 
of branches 
Areas 
served  Methodology  Target clients  Products 
Number 
of clients 
(1999) 
                   
MFI A  Central 
America 
1989  Provide 
services to 
micro, small, 
and medium 
enterprises 
11 branches  Mostly 
urban and 
semi-urban 
locations 
Individual loan 
contracts 
No explicit 
targeting; some 
services 
specifically 
tailored to poor 
Loan size varies 
from $20 to several 
thousand; savings 
products for the 
poor 
14,500 
                   
MFI B  East Africa  1981  Provide 
services to 
women in 
business 
4 regional 
branches 
Areas with 
high 
population 
density and 
high levels 
of business 
activity 
Group guarantee; 
compulsory 
savings  
Women in 
business only; 
business plan 
must be 
approved 
Loan size varies 
from $285-429 
17,000 
                   
MFI C  Southern 
Africa 
1993  Provide 
services to all 
segments of 
population + 
recently started 
program for 
poor women 
4 branches 
and 58 local 
units 
Urban and 
rural 
Shareholders 
entitled to loan 
amount four times 
the amount of 
saving deposit. 
 
Women’s 
program requires 
group formation. 
No explicit 
targeting for 
ordinary share-
owning 
members. A 
recently 
initiated 
program 
specifically 
targets poor 
women. 
Loans of $25 and 
above for  
women’s groups. 
Share paying 
members can 
access loans equal 
to 4 times the 
amount saved. 
22,000 
                   
MFI D  South Asia  1989  Provides 
services 
specifically to 
poor  women 
19 branch 
offices 
Mostly rural  Loans based on 
group guarantee; 
compulsory 
saving plan. 
Specifically 
targets poor 
women only 
Loan size varies 
from $100-300.  
31,000 
 
 
 
 
 
 Poverty has many dimensions, and a range of poverty 
indicators is required to capture these dimensions. Using 
various statistical techniques described in the manual for the 
poverty assessment tool (see Henry et al. 2000), a poverty 
index is used to aggregate the information contained in each 
of the poverty indicators. This index weighs the relative 
poverty of each household relative to all others and provides 
a ranking score. The ranking score indicates how each house-
hold’s estimated poverty level compares with those of all 
other households surveyed. The higher the score is, the rela-
tively less poor the household is. 
 To use the poverty index for making comparisons, the 
nonclient sample is first sorted in an ascending order accord-
ing to its index score. Once sorted, nonclient households are 
divided in terciles based on their index score: the top third of 
the nonclient households are grouped in the “less poor” 
group, the middle third grouped in the “poor” group, and the 
bottom third in the “poorest” group. Since there are 300 
nonclients, each group contains 100 households each. The 
cutoff scores for each tercile define the limits of each poverty 
group. Client households are then categorized into the three 
groups based on their household scores. 
 If the pattern of clients’ poverty matches that of the non-
clients, clients would divide equally among the three relative 
poverty groups just as the nonclients, with 33 percent falling 
in each group. Hence any deviation from this equal propor-
tion signals a difference between the client and the nonclient 
population. For instance, if 60 percent of the client house-
holds fall  into the first  tercile  or poorest  category, the MFI  
 
reaches a disproportionate number of very poor clients 
relative to the general population. 
 
 
 
 
 Each of the four case studies uses 15-20 indicators that are 
used to construct the country-specific poverty index. These 
indicators combine different dimensions of poverty concern-
ing human resources, housing conditions, assets, and food 
security and vulnerability. Nine indicators were commonly 
used in at least three of the four country case studies. 
 Human resources. Eight indicators related to human 
resources are used in the four case studies. These indicators 
reflect the level of education in the household and the pres-
ence of unskilled labor force. The percentage of wage labor-
ers in the household seems to be particularly important in the 
relatively poorer countries of Southern Africa and South 
Asia (MFI C and MFI D). The indicator expressing whether 
the household head achieved the secondary school level is 
important in countries with relatively high literacy rates 
(MFI A and MFI B). 
 Dwelling. Dwelling indicators discriminated among rela-
tive poverty levels well. In the case of MFI D in South Asia, 
8 out of 20 indicators related to housing quality. The impor-
tance of dwelling indicators in South Asia supports the use of 
the housing index as an important indicator of poverty in that 
region. However, in the African cases (MFI B and MFI C), 
where housing is relatively homogenous, only four or five 
housing indicators were used. The presence or quality of la-
trines appears in  all the case  studies. House size (number of 
rooms per person) is used in three countries. 
A Brief Narrative of the Methodology 
The Poverty Indicators Used to 
Compute the Poverty Index  
PAGE 3 
 
Do Microfinance 
Institutions Reach 
the Poorest? 
 
- - - - - - - - - - - - - - 
 
 Assets. A total of 15 indicators on the number or value of 
assets are included in the four case studies. They are particu-
larly important (5 out of 17 indicators) in the Central Ameri-
can country (MFI A), the most well-off country of the 
sample. The amount of land possessed is important only for 
MFIs serving rural and agricultural areas, as is the case in 
MFI D. 
 Food security and vulnerability. These indicators turn 
out to be very important in explaining differences in relative 
poverty in all four studies, particularly in the Southern Afri-
can country (MFI C), which is the poorest among the four 
according to its value for the Human Development Index 
published by the UNDP. The indicator of chronic hunger 
(enough to eat in the last 12 months) appears in all four 
cases. Indicators of short-term hunger (enough to eat in the 
last 30 days) and of consumption of luxury food during the 
week appear in three cases. 
 
 
 
 
Figure 1 presents the results for MFI A. The distribution of 
its clients across the three poverty groups closely mirrors the 
distribution of nonclients, indicating that MFI A serves a 
clientele that is quite similar to the general population in its 
operational area. This result is consistent with MFI A’s 
stated objective of reaching micro, small, and medium enter-
prises and the diversity in the financial products that it offers. 
 
Figure 1 
MFI A: Distribution of client and nonclient households 
across poverty groups 
0
10
20
30
40
50
60
Poorest Poor Less
Poor
Poverty Group
P
e
r
c
e
n
t  MFI client
 Nonclient of MFI
Client status
 
  % Client 
households 
% Nonclient 
households 
Poorest  31  33 
Poor  38  33 
Less Poor  31  33 
 
Figure 2 shows that the poorest households are underrep-
resented among MFI B clients. However, about one-half of 
the clients fall into the two poorest categories, which is 
remarkable considering the mission of the institution (to 
reach all women in business), the focus of the product (to 
finance businesses after submitting a business plan), and the 
lack of overt targeting. 
About half of MFI C’s clients belong to the “less poor” 
group while they are underrepresented in the poorest group 
(Figure 3). This result reflects the fact that MFI C’s member-
ship is share-based and open to all individuals. However, 
poverty outreach is significantly higher when considering 
only clients belonging to the new program for women. 
Nearly one-half (45.2 percent) of these clients belonged to 
the “poorest” group, and only 19 percent of the new women 
clients belong to the “less poor” group. 
 
Figure 2 
MFI B: Distribution of client and nonclient households 
across the poverty groups 
0
10
20
30
40
50
60
Poorest Poor Less
Poor
Poverty Group
P
e
r
c
e
n
t
 MFI client
 Nonclient of MFI
MFI client status
 
  % Client 
households 
% Nonclient 
households 
Poorest  16  33 
Poor  33  33 
Less Poor  51  33 
 
Figure 3 
MFI C: Distribution of client and nonclient households 
across poverty groups 
 
0
10
20
30
40
50
60
Poorest Poor Less
Poor
Poverty Group
P
e
r
c
e
n
t  MFI client
 Nonclients of MFI
Client status
 
  % Client households   
  Typical 
clients 
Women’s 
program 
% Nonclient 
households 
 
Poorest 
 
20 
 
45 
 
33 
Poor  29  36  33 
Less Poor  51  19  33 
 
 Figure 4 indicates quite clearly that the poorest groups are 
strongly overrepresented and that less poor households are 
underrepresented among MFI D’s clients. This result is not 
only consistent with MFI D’s explicit aim to serve the poor-
est households in its operational area but also indicates 
considerable success in its targeting practices. 
The Results  
ABOUT IFPRI 
 
IFPRI’s mission is 
to identify and 
analyze strategies 
for meeting food 
needs of the 
developing world, 
with particular 
emphasis on low-
income countries 
and the poor. 
 
IFPRI is a member 
of the Consultative 
Group on 
International 
Agricultural 
Research (CGIAR). 
 
- - - - - - - - - - - - - - 
 
Any opinions 
expressed herein are 
those of the 
author(s) and do not 
necessarily reflect 
those of IFPRI. 
 
- - - - - - - - - - - - - - 
 
CONTACT 
Bonnie McClafferty 
Communications 
Specialist 
B.McClafferty@ 
   CGIAR.ORG  
 
Figure 4 
MFI D: Distribution of client and nonclient households 
across poverty groups 
0
10
20
30
40
50
60
70
Poorest Poor Less
Poor
Poverty Group
P
e
r
c
e
n
t
 MFI client 
 Nonclient of MFI 
Client status
 
  % Client households  % Nonclient households 
 
Poorest 
 
58 
 
33 
Poor  38.5  33 
Less Poor  3.5  33 
 
 
 
 
A comprehensive assessment of an MFI must include an 
evaluation of how its poverty outreach record reconciles with 
its mission and program objectives. As the case studies have 
shown, MFIs differ in terms of geography, their stated mis-
sion, the type of market niche they seek, and a host of other 
factors, such as the relative development level of the area in 
which the MFI operates in relation to the national average. 
Moreover, reaching moderately poor people in a very poor 
country may be more difficult to achieve than reaching the 
poorest in a relatively wealthy country that has well-devel-
oped institutions and infrastructure. Ignoring these consider-
ations or providing incomplete information on institutional 
details fails to tell a complete story. 
The case studies have contributed to the development and 
testing of a relatively simple tool that can be used to assess 
the poverty level of MFI clients. The four case study MFI 
managers unanimously considered the results to be credible 
and comprehensive for their institutions. The results also are 
consistent with the mission, priorities, and targeting practices 
of the case study MFIs. The Consultative Group to Assist the 
Poorest (CGAP) looks forward to testing the poverty 
measurement tool with a number of other MFIs over the 
coming year to further refine and improve the tool.￿ 
 
 
 
Henry, C., M. Sharma, C. Lapenu, and M. Zeller. 2000. 
Assessing the relative poverty of microfinance clients: A 
CGAP operational tool. Consultative Group to Assist the 
Poorest (CGAP), Washington, D.C. (forthcoming). 
Sharma, M., M. Zeller, C. Lapenu, C. Henry, and B. Helms. 
2000. Assessing the relative poverty level of MFI clients. 
Synthesis report based on four case studies. International 
Food Policy Research Institute (IFPRI) and Consultative 
Group to Assist the Poorest (CGAP), Washington, D.C. 
 
 
 
 
 
 
 
 
 
 
Concluding Remarks 
Selected References 

Do microfinance institutions reach the poorest?

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Do microfinance institutions reach the poorest?

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