UNITED NATIONS CAPITAL DEVELOPMENT FUND    Microfinance

Issue 17 / October 2005

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By Roma Jhaveri, Research Assistant, Asia Pacific Research Center, Stanford University

According to the forces behind the Microfinance Poverty Assessment Tool, every microfinance institution has two central goals: to achieve financial and institutional sustainability, and to impact the lives of the poor. While tools for assessing the sustainability of MFIs have been developed in the past, the Consultative Group to Assist the Poor (CGAP) recognized that tools for evaluating the ability of MFIs to reach poor clients have been largely neglected. The Microfinance Poverty Assessment Tool represents the effort of CGAP, along with the International Food Policy Research Institute, to address the need for a methodology to measure the poverty outreach performance of MFIs.

The Microfinance Poverty Assessment Tool is essentially a manual for MFI donors and investors to initiate research concerning the ability of the MFIs they fund to reach the poor. The tool intends to provide donors with the information they need to use poverty outreach as one of their main funding motivations. It appeals to investors by describing a research methodology that requires a relatively small time and monetary investment. The researchers who will ultimately work alongside the donors to use this tool will also find this a valuable read. Surprisingly, the one group that may not find this manual valuable is the MFIs themselves, as they cannot utilize this methodology without eliciting a biased response.

At its very simplest, the Poverty Assessment Tool is no more than a survey-based tool. It uses an indicator-based method, first identifying a set of indicators that are strongly tied to poverty levels and can be quickly obtained; next designing the survey to collect the needed indicators from individual households; and finally, summarizing the data for comparisons. Examples of the indicators that are used include the type or quality of housing, food security and vulnerability, and wealth or assets. Through collecting the indicator information, researchers create a household poverty score that is used to compare client and non-client houses in the MFI's operational area.

The creation of a formal evaluation system to measure an MFI's success in reaching out to poorer clients has considerable benefits. For one thing, the methodology presented is generic enough to work for all MFIs, regardless of region, client structure or any other variable. At the same time, the manual effectively takes into account local and cultural contexts, and provides suggestions for tailoring the surveys to the researchers' surroundings. Because the methodology has already been tested with hundreds of households, the reader also has the benefit of learning from previous researchers' mistakes. For example, the authors make a point of instructing that the survey questions asked avoid sensitive topics that would make the respondent uncomfortable (which would vary by culture). This is the type of lesson that comes with field experience.

One thing that this manual does extremely well is cover every step of the methodology in extreme detail. The book covers everything from the initial planning of the survey to interpreting its results. It even goes so far as to cover minute details such as the contract that should be established between the donor who is initiating the research and the researchers who will be conducting it. This, coupled with an appendix rich with useful content including a suggested questionnaire, makes the Microfinance Poverty Assessment Tool a valuable resource.

The tool and its manual do have their shortcomings. For one thing, the inability of an MFI to commission this research without any element of bias softens the utility of the tool. Another weakness may be that the authors assume that the MFI donors who will commission this research are more familiar with the details of MFI operations and their clients than they actually are.

As a whole, however, the manual compensates for its weaknesses by recognizing its limitations. After all, this is but one tool in assessing an MFI - other aspects such as institutional governance and the individual focus of the MFI should also be accounted for. External factors, such as geography and political environment, will play a part in an MFIs overall effectiveness as well. Still, in the matter of determining an MFI's performance in reaching the poor, this book is a useful one for donors and researchers alike.

*To purchase the Microfinance Poverty Assessment Tool, please visit the International Year of Microcredit's Made by Microentrepreneurs online store: http://www.shopmicro.org/.