Assessing microfinance: An investigation of whether microfinance reaches the very poor

Akula, Vikram

     This study theoretically and empirically investigates the reach and effectiveness of the popular development strategy, microfinance, which is the provision of financial services to the very poor as a means of getting them out of poverty. First, the study critically analyzes the performance of a representative group of microfinance institutions in various parts of the world. Second, it presents a detailed case study of a microfinance institution that performs differently from most other microfinance institutions and therefore provides an interesting puzzle in need of explanation.
     In the first part of the study, I provide a secondary review of research on microfinance, showing that despite the claims of advocates of microfinance, microfinance has not reached the very poor--although it does reach the moderate poor and non-poor. I then discuss three possible explanations for why microfinance--despite its stated intention of reaching the very poor--does not. Through a detailed examination of various texts and speeches, I show that the most compelling explanation is the "discourses view," which posits that acceptable thoughts and ideas surrounding microfinance have worked to subvert the intention of microfinance to reach the very poor.
     The second part of the study is a case study of a microfinance institution in India--Swayam Krishi Sangam (SKS)--that seems to have been able to escape the trend of not reaching the very poor. I present data from extensive quantitative and qualitative field research that show that SKS reaches the very poor and that microfinance was successful in improving participants' economic well-being.
     I then address the puzzle of why SKS was able to be such a counterexample--that is, why was it able to reach the very poor and make an impact when so many other institutions have not? I argue that key features that distinguish SKS include organization culture, leadership, and a unique funding context. Based on the SKS example and examples of other microfinance institutions that have reached the very poor, I conclude with recommendations for how the microfinance industry can foster more such pro-poor institutions.

Herrigel, Gary