Microfinance, Grants, and Non-Financial Responses to Poverty Reduction

This note was written for audiences from development specialties outside the financial sector to provide guidance on where microfinance is most appropriate, and where complementary and alternative interventions are more effective. It looks at microcredit as one element among many on a menu of possible interventions to generate income and employment, and alleviate poverty, including temporary poverty in post-crisis situations and longer-term hardcore poverty. This perspective should make it easier to see how microcredit relates to other financialand non-financial interventions, and to select a package of tools that are likely to work best in each specific situation. The discussion addresses five questions:

• When is microcredit an appropriate response?
• What is needed for successful microcredit?
• When would savings and other financial services be more beneficial?
• When should grants and other financial entitlements be considered?
• What other interventions can strengthen the economic position of the poor?