Microfinance Interventions to Enable the Poorest to Improve Their Asset Base

M icrofinance has proven an effective tool in alleviating poverty, particularly among the population living on less than a dollar a day. Worldwide, more than 100 million people now receive microfinance, but not all of them are below the dollar-a-day poverty line. Although microfinance is expanding all over the world, probably fewer than half of the people who have access to financial services through microfinance live on less than a dollar a day. The International Food Policy Research Institute has estimated that India has 70 million borrowers, of whom only about 6 million live on less than a dollar a day, suggesting that the majority of borrowers are above the dollar-a-day poverty line. These people are also poor and should not be ignored. These numbers suggest something that the experience of the Bangladeshi organization BRAC (Box 27.1) has shown to be true—that micro-finance has not yet reached the large numbers of very poor people for whom access to finance would lead to better lives. When one is poor and has no money to start a small business that can help improve one's life, access to finance is very important; it is kind of a dream come true. People also need a service that will help them save small sums of money for a rainy day. Even poor people practice saving in small quantities and would find it useful to have a safe place to put these savings, to which they could add in small amounts—a few cents every week. Therefore, there is a need for an institution that allows the poor to save and to borrow small sums of money when they need it. The actual amount borrowed would depend on the ability of their enterprise to generate income to repay the loan; the figure could be as low as US$50.00 or as high as, say, US$400.00 to