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Poor people, with access to savings, credit, insurance, and other financial services, are more resilient and better able to cope with the everyday crises they face. Even the most rigorous econometric studies have proven that microfinance can smooth consumption levels and significantly reduce the need to sell assets to meet basic needs. With access to microinsurance, poor people can cope with sudden increased expenses associated with death, serious illness, and loss of assets.
Access to credit allows poor people to take advantage of economic opportunities. While increased earnings are by no means automatic, clients have overwhelmingly demonstrated that reliable sources of credit provide a fundamental basis for planning and expanding business activities. Many studies show that clients who join and stay in programs have better economic conditions than non-clients, suggesting that programs contribute to these improvements. A few studies have also shown that over a long period of time many clients do actually graduate out of poverty.
By reducing vulnerability and
increasing earnings and savings, financial services allow poor households to make the transformation from "every-day survival" to "planning for the future."Households are able to
send more children to school for longer periods and to make greater investments in their children's education. Increased earnings from financial services lead to better nutrition and better living conditions, which translates into a lower incidence of illness. Increased earnings also mean that clients may seek out and pay for health care services when needed, rather than go without or wait until their health seriously deteriorates.
Microfinance programs have generally targeted poor women. By providing access to financial services only through women—making women responsible for loans, ensuring repayment through women, maintaining savings accounts for women, providing insurance coverage through women—microfinance programs send a strong message to households as well as to communities. Many qualitative and quantitative studies have documented how access to financial services has improved the status of women within the family and the community. Women have become more assertive and confident. In regions where women's mobility is strictly regulated, women have become more visible and are better able to negotiate the public sphere. Women own assets, including land and housing, and play a stronger role in decision making. In some programs that have been active over many years, there are even reports of declining levels of violence against women.
Although access to financial services opens up possibilities of improving the economic conditions of the poor, in some cases, clients can be left worse-off. Ill-advised credit can lead to too much debt. Sustainable financial services that improve the conditions of the poor depend on a clear vision of sustainability, on careful program design, on efficient operations, and very importantly, on constantly trying to understand and meet client needs.
Jonathan Morduch and Barbara Haley, "Analysis of the Effects of Microfinance on Poverty Reduction" (paper prepared by RESULTS Canada for the Canadian International Development Agency, November 2001).
Elizabeth Littlefield, Jonathan Morduch, and Syed Hashemi, CGAP Focus Note: Is Microfinance an Effective Strategy to Reach the Millennium Development Goals? (Washington, D.C.: CGAP, January 2003).
Anton Simanowitz with Alice Walter, "Ensuring Impact: Reaching the Poorest while Building Financially Self-sufficient Institutions, and Showing Improvement in the Lives of the Poorest Women and Their Families," in Pathways out of Poverty:
Innovations in Microfinance for the Poorest Families, ed. Sam Daley-Harris (Bloomfield, Conn.: Kumarian Press, Inc., 2002).
Impact Assessment Center: http://www.microfinancegateway.org/impact/
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