1 Integrating a Poverty Focus in Microfinance European Rural Development Forum 4-6 September 2002 Jennifer Isern

2 Impact of Financial Services: Access to financial services helps: lBuild businesses lIncrease income lSmooth consumption lReduce vulnerability lEmpower women lImprove education & health

3 Paradigms in Rural Finance Role of financial markets OLD PARADIGM Promote new technology Stimulate production Help the poor NEW PARADIGM Intermediate resources more efficiently Reduce vulnerability of poor BorrowersAgricultural loan “beneficiaries” selected through targeting Household as “Client”. Borrowers and lenders choosing products Subsidies vs. sustainability Subsidized interest rates, loan defaults Create independent institutions Source of fundsGovernments and donorsMore voluntary deposits The “challenge”Overcome market imperfections Lower risks and transaction costs Adapted from Adams (1997)

4 Trade offs between depth of outreach and sustainability for MFIs Depth of Outreach Sustainability Most MFIs Regular banks Pure Charity

5 Priorities for Poverty-focused Finance Assist MFIs to better understand financial service needs of the poor Stimulate product development to better meet client needs l savings l appropriate loan products l microinsurance l rural finance l housing microfinance l remittances

6 Priorities for Poverty-focused Finance Increase impact l Understand trade-offs between depth of outreach and sustainability Understand role of finance and other services l Example of linkage program IGVGD in Bangladesh

7 Web-centers for industry exchange & learning

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