Graduating the poorest into microfinance : linking safety nets and financial services
Hashemi, Syed | Rosenberg, Richard
Microfinance-or formal financial services for the poor-helps people fight poverty on their own terms, in a sustainable way. Poor people use loans, deposits, and other financial services to reduce their vulnerability, seize opportunities, and increase their earnings. Indirectly, microfinance improves schooling, health, and women's empowerment. In most settings, however, microfinance does not reach the people at the very bottom of the socioeconomic scale-the "poorest." Even in the case of microfinance institutions (MFIs) that focus on reaching very poor clients, there are substantial numbers of people who are too poor to participate. For example, in Bangladesh, where MFIs are strongly focused on serving the very poor, MFI concentration is highest among the second poorest quintile group; it is lowest among the poorest quintile. Microfinance services are not aimed at the poorest communities. Why is this? The note explores for instance, that one reason extremely poor people may prefer not to borrow is because they think debt is more likely to hurt rather than help them, and, many extremely poor people decide that their life is already risky enough without taking on debt. Arguably, some of these fears may be more about confidence than reality, but the poor are usually the best judges of their own situation. Examples raise the questions: Can microfinance help the poorest? If so, how? And can people "graduate" from being recipients of grants to becoming full-fledged microfinance clients?
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