1. 1 Is There a Difference in Poverty Outreach by Type of Microfinance Institution? The Case of Peru and Bangladesh Manfred Zeller Institute of Agricultural Economics and Social Sciences in the Tropics and Subtropics University of Hohenheim, Stuttgart, Germany Julia Johannsen Institute of Rural Development Georg-August-University Göttingen, Germany Global Conference on ‘Access to Finance: Building Inclusive Financial Systems’ of The World Bank and the Brookings Institution in Washington, D.C., May 30 and 31, 2006

2. 2 Outline of presentation Changing paradigms and policy objectives in development finance Types of financial institutions Sampling design and poverty lines Poverty outreach of MFIs –Bangladesh –Peru (national and MFI sample) Conclusions

3. 3 The triangle of finance: Synergies and trade-offs Outreach (Breadth and Depth) Welfare impact (Direct/Indirect) Financial sustainability Source: Zeller, M., and Meyer, R.L. 2002. The triangle of microfinance: Financial sustainability, outreach, and impact. Book published by IPPRI/John Hopkins Univ, Dec. 2002.

4. 4 Types of financial institutions Semi-formal Institutions (NGO-MFIs) Member-based institutions: (1) Credit unions (2) Village banks (supported by NGOs) Micro-banks, lending technologies: Individual and solidarity group lending, linkage model (with pre-existing self-help groups) Other: (1) Public banks (sectoral, agricultural, rural) (2) private commercial banks with MF windows

5. 5 Sampling design Nationally representative self-weighing sample of 800 households (IRIS Center) Multi-stage cluster sampling Probability-proportionate-to-size (PPS) Bangladesh: 10 counties (Thanas) in 5 divisions (x 80 hhs) Peru: 8 of 24 departments (x 100 hhs), controlling for 7 geographic areas (rural/urban macro-regions): - Lima Metropolitan, Urban/Rural Coast, Urban/Rural Highland, Urban/Rural Lowland Peru: 6 purposefully selected MFIs (1175 client hhs)

6. 6 Poverty lines in Peru Expenditures July 2004 Region Median Poverty Line (Soles/pers /day) National Poverty Line (Soles/pers/ day) Internat. $1 Poverty Line (Soles/pers/ day) Internat. 2$ Poverty Line (Soles/pers/ day) Lima Metrop. Urban Coast Rural Coast Urban Highland Rural Highland Urban Highland Rural Lowland 5.98 4.68 3.04 4.04 2.38 3.83 2.60 8.45 6.99 4.75 6.01 3.93 5.81 4.04 2.08 4.16 Source: adapted from Zeller, Johannsen and Alcaraz (2005) Regionally disaggregated national and median poverty line and international $2 and $1-poverty line

7. 7 Poverty lines in Bangladesh Expenditures July 2004 Region National Poverty Line (Taka/pers/day) Median Poverty Line (Taka/pers/day) Internat. $1 Poverty Line (Taka/pers/day) Rural Dhaka Rural Faridpur, Tangali, Jamalpur Rural Sylhet, Comilla Rural Noakhali, Chittagong Urban Khulna Rural Barishal, Pathuakali Rural Rajshahi, Pabna Rural Bogra, Rangpur, Dinajpur 24.80 22.24 27.77 27.06 30.22 23.18 25.97 21.90 22.96 17.05 21.84 20.94 24.85 19.47 20.16 17.57 23.10 Source: adapted from Zeller, Johannsen and Alcaraz (2005) Regionally disaggregated national and median poverty line and $1-poverty line

8. 8 Gender and residence of clients in Bangladesh (N=2209 adults) Main type of financial institution Does client live in rural area? NO YES Sex of client FEMALE MALE Share (%) of total clients NGOs providing microfinance32.6% 67.4%90.5% 9.5%63.9% Public bank16.0% 84.0%7.6% 92.4%28.7% Other governmental institution providing microfinance 8.3% 91.7%54.2% 45.8%4.7% Other (private bank, coop, etc.) 69.2% 30.8%53.8% 46.2%2.7% Non-clients19.8% 80.2%49.6% 50.4% Total21.6% 78.4%53.0% 47.0%(100%)

9. 9 Poverty outreach in Bangladesh Main type of financial institution Daily expenditures per capita (Taka) Below the median poverty line (adj. by regions)(%) Below the national poverty line (adj. by regions)(%) Below the internat. Poverty line ($PPP 1.08 at 1993 prices) NGOs providing microfinance (N=328) Mean34.621.038.732.3 Public bank (N=144)Mean42.27.625.016.7 Other government institutions providing microfinance(N=24) Mean52.78.3 Other (private bank, coop, etc.) Mean39.230.8 Non-clients (N=1700)Mean37.116.535.728.1 Total (N=2209)Mean37.216.635.127.8

10. 10 Poverty by length of membership Length of client relationship (in approx. terciles) Daily expenditures per capita (Taka) Below the median poverty line (adj. by regions) (%) Below the national poverty line (adj. by regions) (%) Below the internat. Poverty line ($PPP 1.08 at 1993 prices) Less than two years (N=150) Mean32.721.340.034.0 Two to Five years (N=200) Mean37.420.038.529.0 Longer than five years (N=159) Mean42.88.820.117.0 Non-clients (N=1700)Mean37.116.535.628.1 Total (N=2209)Mean37.216.635.127.8

11. 11 Gender and residence of clients in Peru (N=2325 adults) Main type of financial institution Does client live in rural area? NO YES Sex of client FEMALE MALE Share (%) of total clients Public bank (Banco de la Nacion) 88.2% 11.8%58.8% 41.2%22.5% Private banks (including micro- banks such as MiBanco) 93.0% 7.0%75.4% 25.7%37.7% Municipal Savings and Loan Banks (CMACs) 74.3% 25.7%77.1% 22.9%23.2% Other (NGO, rural savings banks, coop, etc.) 72.0% 28.0% 16.6% Non-clients70.1% 29.9%47.0% 53.0% Total71.0% 29.0%48.6% 51.4%(100.0%)

12. 12 Poverty outreach in Peru Main type of financial institution Daily expenditures per capita (Soles) Below the median poverty line(adj. by regions) (%) Below the national poverty line(adj. by regions) (%) Below the internat. Poverty line($PPP 1.08 at 1993 prices) Below the internat. Poverty line($PPP 2.16 at 1993 prices) Public bank (Banco de la Nacion) (N=34) Mean10.223.526.52.923.5 Private banks (including MiBanco) (N=57) Mean11.88.821.10.03.5 Municipal Savings and Loan Banks (N=35) Mean9.40.025.70.02.9 Other (NGO, rural savings bank, coop, etc.) (N=25) Mean10.38.028.08.020.0 Non-clients (N=2174)Mean7.229.253.69.633.5 Total (N=2325)Mean7.428.051.79.132.0

13. 13 Poverty rate, by participation in formal savings Household has a formal savings account Daily expenditures per capita (Soles) Below the median poverty line(adj. by regions) (%) Below the national poverty line(adj. by regions) (%) Below the internat. Poverty line($PPP 1.08 at 1993 prices) Below the internat. Poverty line($PPP 2.16 at 1993 prices) NO (N=730)Mean7.028.953.210.734.5 YES (N=70)Mean12.85.721.42.911.4 Total (N=800)Mean7.626.950.410.032.5

14. 14 6 selected MFIs EDYFICAR, registered NGO (non-bank financial institution, only credit) CRAC Cruz de Chalpon (rural savings and loan bank) CMAC Chincha (municipal savings and loan bank) Coop San Isidro Huaral (cooperative) Coop San Pedro Andahuaylas (cooperative) CARITAS (NGO) none with explicit women targeting only San Pedro and Caritas with rural/poverty targeting objective

15. 15 Poverty outreach of 6 MFIs Main type of financial institution Daily expenditures per capita (Soles) Below the median poverty line (adj. by regions) (%) Below the national poverty line (adj. by regions) (%) Below the internat. Poverty line ($PPP 2.16 at 1993 prices) Edyficar (N=200)10.716.541.02.5 CRAC Cruz de Chalpon (N=175)11.512.623.49.7 CMAC Chinca (N=200)10.28.038.56.0 Coop San Isidro Huaral (N=200)12.24.015.51.5 Coop San Pedro Andahuaylas (N=200) 6.416.043.544.5 Caritas (N=200)10.35.522.06.0

16. 16 Conclusions-1 Main institution types in samples (legal status): -(semi-formal) NGOs/solidarity groups, cooperatives (member-based, peer pressure) -public banks, private banks, micro-banks (information asymmetry) Bangladesh: 46% client households -NGOs! (solidarity group lending) Peru: 19% client households -heterogeneous sector (transformed in 90s, micro-banks!)

17. 17 Conclusions-2 Bangladesh: higher breadth of outreach! -microfinance since 1970s -high population density, low administrative costs Peru: -mistrust in formal institutions: inflations 1980s (savings losses!), guerilla war 1980s-90s -heterogeneous geography (Andes, rainforest) Bangladesh: higher depth of outreach, NGO-MFIs! Peru: cooperatives! -length of membership: 5 yrs vs. 3 yrs (Peru) ->mutual trust -declining poverty pattern with increasing length of membership

18. 18 Conclusions-3 Bangladesh: 29% saving hhs, Peru: 9% mainly demand constraints by poor for existing savings products -> Does institution type really matter? -mission!: management emphasis (triangle!) -ownership -> social investors -targeting strategy: rural, women, poor; instruments? -social capital/ pressure (member-based institutions)

19. 19 THIS IS THE END …

20. 20 Old versus new paradigm Old paradigm of sector-directed, supply-led and subsidized credit: –faulty assumptions about demand (i.e. “need”) –focus not on financial sustainability of institution, but on (depth) of outreach. Impact was assumed. New paradigm: –focus on institution and systems building –liberalization of financial markets as necessary but not sufficient condition for deepening financial systems  need institutional and technological innovations to reduce transaction costs –Demand orientation, three objectives

21. 21 Relative poverty outreach of Grameen Bank, by expenditure terciles Tercile of daily per-capita expenditures from geographic subsample of nationally representative sample (N=400) Client households of Grameen Bank 135.1% 233.3% 331.6% Total100.0%

22. 22 Relative poverty outreach of BRAC, by expenditure terciles Tercile of daily per-capita expenditures from geographic subsample of nationally representative sample (N=559) Client households of BRAC 148.0% 232.0% 320.0% Total100.0%

23. 23 Relative poverty outreach in Bangladesh Quintile of daily per- capita expenditures from nationally representative sample Main type of financial institution NGOs Public Other government Other providing bank institution (private microfinance providing bank, microfinance coop, etc.) (N=228) (N=123) (N=12) (N=8) Non- clients (N= 428) 1 2 3 4 5 Total 24.1% 7.3% 37.5% 22.8% 18.7% 21.5% 21.1% 25.0% 16.2% 21.1% 25.0% 37.5% 15.4% 31.7% 50.0% 25.0% 100.0% 100.0% 21.5% 19.9% 19.2% 21.3% 18.2% 100.0%

24. 24 Relative poverty outreach in Peru Quintile of daily per- capita expenditures from nationally representative sample (N=800) Main type of financial institution Public bank Private banks Municipal Other (Banco de (includes Savings and (NGO, rural la Nacion) micro-banks) Loan Bank savings bank, (CMACs) coop, etc.) Non- clients 1 2 3 4 5 Total 8.7% 11.8% 26.1% 7.9% 3.7% 17.6% 23.6% 40.7% 11.8% 43.5% 18.4% 29.6% 35.3% 21.7% 47.4% 25.9% 23.5% 100.0% 100.0% 22.4% 21.1% 19.7% 18.6% 18.1% 100%

25. 25 Poverty by length of membership Length of client relationship (in approx. Tercile ranges) Daily expenditures per capita (Soles) Below the median poverty line(adj. by regions) (%) Below the national poverty line(adj. by regions) (%) Below the internat. Poverty line($PPP 1.08 at 1993 prices) Below the internat. Poverty line($PPP 2.16 at 1993 prices) Less than or equal to 1 year (N=51) Mean9.111.833.31.013.7 Longer than 1 year and less than or equal to 1 year and 7 months (N=49) Mean10.2 26.54.18.2 Longer than 1 year and 7 months (N=51) Mean12.67.813.70.09.8 Non-clients (N=2174)Mean7.229.253.69.633.5 Total (N=2325)Mean7.428.051.79.132.0