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UNITED NATIONS CAPITAL DEVELOPMENT FUND Microfinance |
Issue 15 / August 2005 |
 
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Voices of Microfinance
Q. Would data on the percentage of people who have access to formal financial services be a good indicator of whether the needs of poor people are being met in a particular country? Why, or why not? Editor's Note: The majority of respondents said no, data on the percentage of people who have access to formal financial services would not be a good indicator of whether the needs of poor people are being met. The first, most obvious reason cited was that poor people rely so heavily - and often exclusively - on the informal financial sector. Many respondents felt, as one put it, that access to formal financial services is a "necessary but not sufficient" indicator, and must be complemented by qualitative information. It was also stressed that it is "not the quantity of access but the quality," and that quantitative data does not indicate if the funds are well used. One participant thought that client dropouts are a better indicator of whether needs are being met. Another argued that access to financial services is a "pre-condition (not an indicator)" to determine if needs are being met, and that it is product design and distribution that meet the goal of client responsiveness. Market failures were also cited as a concern - it was pointed out that this indicator only measures supply and not demand. Those who reacted positively and agreed that data on access to formal financial services could serve as a good indicator still stressed that this data should be used in conjunction with qualitative information, such as features of products and services, whether training is offered, flexibility in payment terms, and country context. One respondent felt that this indicator would be useful in evaluating where resources and technical assistance should be concentrated, while another said that while not perfect, this indicator is a lower cost solution than qualitative indicators would be. While some answered yes and some answered no, the qualifiers that accompanied these responses revealed consensus - coming up with indicators of poor people's access to finance is no easy task. *Thank you to all those who contributed their expertise to provide valuable insight into this question. Data on the percentage of people who have access to formal financial services only provides information on the supply of formal financial services. In cases of any sort of market failure, the market is twisted in some ways and we cannot expect an optimal market clearing (i.e., supply equals demand). When the supply does not equal demand, data on supply is not a good indicator of whether needs (demand) are being met. Market failures are plentiful in poor countries. In the case of microcredit, the specific market failure "lemon principle problem" is repaired and the supply is more equal to demand than before the implementation of microcredit. But often, there are other market failures. Besides, in some cases credit is available even if there are no financial institutions. Credit can be both in cash and kind. Financial services can be provided informally, which is the case in many poor countries.
Ms. Lene Bjorn
Such a figure alone would not be a good indicator, for a number of factors affecting the true rate at which poor persons meet their financial needs remain unconsidered. Some of these factors include access to informal financial services and the relative level of poverty per individual/household, as microfinance is often unable to reach the indigent who possess little economic potential to actualize. Hypothetically, it may very well be that the majority of a region's — or even nation's — entire poor demographic meets its financial needs through developed informal financial services, a scenario the proposed datum could not demonstrate effectively and a significant consideration. However, this is not to say formal financial service data would not be of immense value, rather I argue it simply is not a reliable indicator of whether the financial service needs of the poor are being met in a particular country.
Jason Mischel
Data on the percentage of people given access to formal financial services will definitely serve as a general indicator of whether the needs of poor people are being met. Other descriptions will of course be useful qualitatively to determine sustainability and expansion, such as the features of the financial products and services being promoted, the microfinance services provided by the MFIs, the loan cycles and cash flow flexibility for the payment terms, range of banking services made available such as deposits, money transfer and exchange, assistance to borrowers technical assistance, marketing and self help needs, collection or past due ratios, portfolio at risk, insurance, medical benefits, and the like.
Senen Gloriosio
Whether or not data on percentage of people who have access to formal financial services is a good indicator of whether the needs of the poor people are being met in a particular country is charged with a lot of ambiguity. It is not only the access to the funds, but also the timely disbursement and appropriate amounts that are necessary to justify the data being classified as meeting the needs of poor people. The economic background of the people who have been assisted by such financial services is significant. The data on percentage of people who have access to the formal financial services will be more appropriate if all the recipients of the finances are first time beneficiaries.
Dr. Devendra S. Kunwar
The percentage of people with access to formal financial services is not a good indicator to assess whether the needs of poor people are being met in a particular country, because it excludes the large amount of informal financial services available to the poor, including microfinance NGOs, rotating savings and credit associations (ROSCAs), etc. The best way to assess whether the needs of poor people are being met in a particular country is to ask them if they have access, where they get it and whether it is sufficient. While it would be impossible to ask all poor people, a statistically significant sample size is the more reasonable alternative, but still expensive. However, if cost is a significant issue, then looking at the percentage of people with access to formal financial services plus those served by countable informal financial service providers, could provide a decent indicator of the extent to which the poor have access to financial services. But even those having access might not feel that their needs are fully satisfied.
Anita Campion
Data on the percentage of people accessing formal financial services will be a good indicator as we will learn about the percentage of people who have not benefited from the services and the current service arrangements for them. It is important new ground in measuring unmet needs among poor people living in a particular country and in documenting what happens when their financial service needs go unmet. It will also help in understanding what dimensions of "financial services" have to be improved so that the outreach of the services is increased over a period of time. It is hoped that the findings would inform the service providers and officials to make efforts to improve the organization and delivery services for people who do not have access to these services. Finally through this information, we will also learn a lot about the contributions of the financial service providers in accelerating economic growth.
D.Ravi Kumar
While donor and relief agencies do invaluable work in the fight against poverty, a healthy financial sector that adequately services poor people is necessary in the long-term. The availability of formal financial services usually signifies that there is an established and sustainable microfinance industry. Ideally, the goal is an end that is beneficial to the clients themselves — increased credit availability at lower rates. Indeed, as commercial banks downscale and NGOs become regulated, competition drives down interest rates, and loan officers seek new borrowers in rural areas. Used as a comparative benchmark, this indicator could help in evaluating where increased resources and technical assistance efforts should be focused to ensure income-generation and wealth-creation in poorer nations. This could help multilaterals and other intermediaries focus their attention on critical regions, and learn from those areas that have been able to provide a wide amount of coverage.
Devin Long
Poor people face many obstacles in obtaining formal financial services. If they are unable to read and write, they are unable to submit written credit applications. If they have no collateral, the risk of loan loss discourages formal financial institutions from dealing with them. Data on the percentage of people who have access to formal financial services is a concrete indicator of whether the needs of poor people are being met. However, our depth of outreach diamond (a tool to analyze the degree to which the needs of the poor are met) should broaden. The extent to which various formal financial institutions meet the needs of poor people (whether it is rural development banks or small business development banks) can be measured. Also, what portion of the services are met by semiformal institutions such as credit unions or NGOs, or by informal service providers such as self-help groups? That would improve the analysis by specifying the significance of outreach.
Milan Vemic
Data on the percentages of people with access to formal financial services is not a good indicator of whether the needs of poor people are being met. Access to financial services is a pre-condition (not an indicator) in order to subsequently see whether the specific needs of poor people are being met. The issue of whether the needs are being met is more a function of the specific financial services products' design and the respective microfinance distribution channels. Instead of "have poor people access to financial services?" We may formulate : "have financial services access to poor people?" Microfinance, like any other financial services must take an active approach. To open a branch in a densely populated market location is not a success indicator and guarantor. Although poor people may have access to the branch, it often happens that the branch fails as it does not have the right offerings.
Wolfgang Heupel
Data on the percentage of people that have access to formal financial services is a necessary but not sufficient indicator of whether the needs of the poor are being met. For such information to be sufficient it must be supplemented by other data such as the percentage of client dropouts from the formal financial sector. Client dropout rate is a more precise indicator of whether financial institutions are meeting financial service needs for the clientele. In Malawi, for example, where access to formal financial services is reported to be less that 10 percent, some key financial institutions are experiencing dropout rates of more than 50 percent. While access to financial services is among the key indicators of outreach of financial institutions, it is important to note that there are six aspects of outreach by which success should be measured. The depth and breadth of outreach is by far more crucial in this regard than merely knowing the percentage that have access to financial services. In fact, it is important to specify the category of people being reached as well. For example one needs to know the percentage of the poor, the middle-class, being reached and to what extent. In addition it is important to know what financial products and services the people have access to.
Franklin Simtowe
To ascertain the degree to which the needs of poor people are being met by accessing financial services can only be accurately determined if you have figures on how many poor people (as opposed to how many people) are accessing these services. This also implies a need to define 'poor' consistently. Lots of people may well be accessing financial services, but this cannot be presumed to mean that poor people (let alone ALL poor people) are having their needs met.
Maree Nutt
Access to formal financial services is not a good indicator of whether the needs of people with limited economic resources are being met because many people with limited economic resources work and meet their needs in the informal sector. To measure the degree to which people with limited economic resources are able to meet their needs, it is important to take into consideration the availability of services outside of the formal financial sector, including but not limited to financial services.
Cristian Shoemaker
No, because the needs of poor people are multifaceted. Simply accessing financial services doesn't mean that one will not fail to meet the basic needs for sustainable livelihood.
Mr. Antoine Rukebesha
This indicator cannot be used to measure whether the needs of poor are being met. In general, formal financial services offered by institutions aiming at sustainability will not on a large scale be able to reach poor people. Their client group may include some poor, but would generally be oriented to the economic active population. If we assume that poor means having a limited capacity of economic activity and a limited capacity to generate income, then their access to formal financial services will remain limited. It is out of the question that poor people require financial services, but it does not mean that these services can be provided by the formal financial sector. The special needs of the poorest should be catered to by programs specially oriented towards poverty alleviation and income generation.
Abenaa Addai
The figures will mean something if they are: gender segregated (men, women, type of household), compared to the demographic figures of the country (men, women, age), combined with an analyses or indication is given of the criteria for access to the formal services, combined with an analyses of the formal legislation (e.g. Can women apply as individuals or is there a formal and/ or cultural constraint). If that is not the case, the figures will not mean much.
Lesha (B.M.) Witmer,
Yes, it will be a good measure, but should be taken in the context of a particular country. Financial exclusion is generally influenced by: a) Socio-economic environment. The nature of the society and the general economic condition in the country affects the delivery of financial products and services. The people in general may not have the culture, attitude and desire to use financial services. b) Level of Financial Literacy. In countries or communities with low levels of financial literacy, people do not understand the significance of financial services and products, how to access them or even how to use them. c) Banking Policies and Local Financial Environment. Generally, mainstream financial institutions observe financial policies which are designed to achieve commercial results. Such policies make it virtually impossible or difficult for ordinary or poor people to access financial services and products.
Wilfredo Garcia
It is important to bear in mind that in many developing countries, formal financial services are not accessible by many poor people because of the requirements and physical proximity to these services. The poor might not be able to afford the collateral set forth. Also, the formal financial service providers are not yet reaching rural areas. Much is being done to improve this, but for now the percentage of persons accessing formal financial services cannot be a good indicator of meeting the needs of the poor people. There are many informal institutions offering financial services to the poor people both in the urban and rural areas in many countries. The percentages could be used in combination with other indicators so as to portray a balanced picture in terms of describing financial access by the poor.
Dorothy Nduku
The percentage of people who have access to formal financial services is a good indicator to measure the needs of poor people, at quantitative level. However, it is also necessary to measure qualitative aspects to cover all the needs of poor people in a given country. Some qualitative aspects include obtaining funds for development projects, technical assistance in training, proper credit technology, and personal assistance to clients.
Lic. Silvia M. de Méndez
These data are never good indicators of the realities in developing lands. First of all, many disadvantaged people are not aware of the possibilities offered by financial services. The level of percentage, though theoretically good for calculations or assessment, is not correct. Second, the figure itself does not tell whether the funds are well used or appropriately address issues that will meet the needs of poor people.
Cisse Abdoulaye
Knowing what percentage of people have access to formal financial services certainly gives a good idea of whether the needs of the poor are being met, since access to financial services is a major tool in improving living conditions and fighting poverty. However, to ensure durable results, it is critical that financial services be offered in a sustainable manner. Communities should be provided with tools for organizing themselves and meeting their own needs for financial services, beginning with the use of local resources, savings deposits and capacity-building. Setting up local financial institutions owned by the community they serve and designed to improve the community is essential to guarantee sustainable access to financial services. Furthermore, financial institutions also must respond to the growing needs of their members by providing specialized products and services as they need them. By doing so, they give their members additional tools to improve their living conditions.
France Michaud
Access to formal financial services may not have any direct relationship to the satisfaction of the needs of poor people. If a high percentage of people in a given country have access to formal financial services, it may well be that those with access to these services are the wealthy segment of the population. Even where poor people have access to formal financial services, one cannot conclude that their needs are being met. Meeting the needs of poor people goes well beyond the mere provision of orthodox financial services but should include an effective training program on how to use the financial resources to better their current and future economic conditions. Many successful microfinance schemes have found that poor people need much more than cash. That is why more of such programs are incorporating business, accounting, health and family planning training into their regular programs.
Kenneth Kalu
Data on the percentage of people with access to formal financial services should only be a part of a total package of information that can be used to improve access to financial services for poor people in areas/countries where programs are taking place and start programs where financial services are absent. Quantitative information provides limited information. It does not provide qualitative information like efficiency (number and manner of how access takes place) and effectiveness (degree of success of access) and on what kind of financial services are provided.
Corazon Dee, Ph.D.
Partially, data on the percentage of people with access to formal financial services could be one of the indicators. By and large the policy of the government, priority and infrastructure put in place by the formal financial institutions (FFIs) to reach poor people also matter. Unless there is a major change in perspective and approach in financing poor people, whatever is done by the formal financial institutions is going to be a drop in the ocean. Secondly, in most of the cases, financing the target group is becoming a social obligation for FFIs. Every year they fix a target, try to achieve it and are satisfied with that. It is imperative to state that 'the percentage of people accessing financial services from FFIs could be a good indicator but paints a false picture.'
J Milton Devadosan
Poor people have limited access to formal financial services the transaction costs they cannot afford. These costs are associated with different requirements that people must fulfill in order to have access to formal financial services (e.g. commercial loans, mortgage loans). However, it is very difficult for poor people to fulfill those requirements because they usually belong to the informal sector and they can't show documents in order to demonstrate their incomes. So, poor people have access to informal financial services that are more expensive than formal financial services, but they ask for fewer requirements. These problems suggest that the percentage of people who have access to formal financial services is not a good indicator of whether the needs of poor people are being met, so it is important to consider other indicators related with access to informal financial services.
Sergio Rottenschweiler
Poverty can be viewed from either the absolute or relative contexts. If the absolute context is considered, the response to the above question is qualified by the following issues: While data for such people may be useful, it may not reveal the percentage constituted by poor people and the tool used in measuring their level of poverty, hence making it unclear whether their needs have been addressed. Secondly, even if poor people were to constitute a bigger percentage of those accessing formal financial services, access itself is not an adequate indicator that the needs of poor people are being met. Services may be too poorly designed to address the needs of poor people. Last but not least, the needs of many poor people may not necessarily be addressed through financial services interventions. Other non-financial issues are also critical such as health, psychological and affiliation aspects. Of course these have some financial implications.
Dorothy Katantazi
The percentage of people who have access to the formal financial services is not a good indicator. The percentage of people should be taken from the area where poor people are living. If we analyze holistically, it will not give an actual measure of poor people. We should analyze percentages of poor people who have access of formal financial services. This will give a real scenario of poor people. Poor people's calculation should be taken separately.
Govinda Bahadur Raut,
Let's first look at the needs of poor people. Direct uses of money for meeting needs of poor people include: (a) access to healthcare and education, (b) purchase of productive assets, (c) fulfilling day-to-day consumption needs, and (d) acquiring skills. Therefore, this indicator does not appear as ideal. But what other indicators do we have for the purpose? Many of the above aspects of needs of poor people are qualitative and costly to estimate while the given indicator is less costly, easy to construct and able to summarize many aspects of needs of poor people. In light of the above, the indicator emerges as good.
Ishrat Hussain
The said indicator will not be a good indicator as it merely suggests access to financial services of a particular segment of society. However, ensuring access does not itself guarantee that needs of poor people are being met. There could be a number of reasons for such a trend. The documentation procedure may be so cumbersome that poor people (normally illiterate, too) might be wary of approaching the formal financial institutions. In many countries, the informal sector caters to the financial needs of poor people and competes with the formal financial sector simply because it ensures swift availability of loans without comprehensive documentation. Needless to say, no single indicator provides sufficient information regarding the questioned issue and it should be taken in conjunction with other suitable indicators.
Nizamuddin Arshad
The availability of such data would certainly throw light on how many people are marginalized by financial sectors. However, if the bottom line objective of microfinance is to improve the well-being of the poorest, it would be important to also know of those that do have the credit, how many are able to build or grow a successful business and how much money they pay in interest, compared to those who have access to mainstream financial institutions. Finally, access to financial services must be understood as not only access to credit, but also as a means to save and insure one's risks. Jorge Torres Access to formal financial services by the people cannot be an indicator that the needs of poor people are met in a particular country. First of all, the formal financial services do not meet the real needs of poor people. Poor people need credit for repairing their houses, for expenses incurred on birth or death in the family, dowries, household goods, etc. So, poor people's real needs are not at all met by the formal financial services as they do not service the above needs. Secondly, the services from the formal financial sector or arranged by the government are mostly targeted to achieve political and personal goals. The people do not "own" the programme. The services offered by the formal financial sector are certainly availed by the people but sustainability or their self reliance is not assured in such a system.
Fr. Maria Joseph
Making data available on the extent to which formal financial services are made available to poor people would serve as a gauge in determining if needs of poor people are being met not only in terms of availing of services from traditional lending institutions, but also in terms of what they are deprived of such as money for schooling, housing and putting up a small business.
Rosemary Dinio
There is no relationship between access to formal financial services and poor people, as almost no poor people have access to formal financial services. The opportunities to overcome poverty by proper initiative depends largely on access to adapted financial services. To make an indicator speaking to access to microfinance institutions, NGOs providing credit and savings and credit cooperatives must be integrated. Moreover access to credit does not always reduce poverty, as debt creation can also reduce future opportunities for growth. Effective access to financial services to the poor depends also largely on the monitoring and management of additional social elements. Access alone is not enough!
Bart De Bruyne
The percentage of people with access to formal financial services will not be a good indicator of whether the needs of poor people are being met in a particular country. It is not the quantity of access but the quality of access to financial services, which is important as far as the distribution of financial services is concerned. Only the percentage of poor people who have access to formal financial services specially meant for poor people will only be a good indicator.
Mohan Mugdal
On its own, no, qualitative data is not important. Purpose and use is very important given the context of poor people (more social than productive problems). Wrong products obviously may not address the needs of poor people. Percentage of transactions costs may be huge but with poor people sacrificing more time, efforts, travel costs etc. to get the services. The level of satisfaction of clients to the services is very critical.
Alfred Hamadziripi
The percentage of people is a good indicator to assess performance, however, the data should be equipped with qualitative measures and the actual figures should also be given. Every country has different social, economic, political and cultural situations. If data represents the number of poor people in a country and subsequently it gives the percentage, then the data will provide meaningful figures and percentages for analysis and dissemination of information to all the stakeholders
Madan Kumar Karanam
The data provides only the financial aspect of the needs of the poor. We want to see how many poor people really have access to minimum basic needs (i.e., food, shelter, education, health, water, participation, security). We need to see a holistic approach on fighting poverty. Credit is only part of the solution. Education and empowerment is key to attain the minimum basic needs.
Rolando B. Victoria
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