Research & Analysis

Financial Sustainability, Targeting the Poorest, and Income Impact

Can microfinance institutions (MFIs) achieve financial sustainability and reach the poorest of the poor? What are the tradeoffs in pursuing these two goals simultaneously? These are among the key questions addressed by David Hulme and Paul Mosley in their recent book, Finance Against Poverty (London: Routledge, 1996). The findings of this book have sparked a lot of discussion among microfinance specialists. The objective of this note is to bring these findings to a wider readership. It is not a review of the book and should not be considered as such.

Professors Hulme and Mosley examined 13 MFIs in seven countries, all poverty-reducing in intention and all using slightly different combinations of design features. The purpose of the study was to understand the influence of the institutions’ design, management and policy environments on financial sustainability and on various measures of impact, including poverty. The authors compared the change in each impact variable over the period 1989-1993 in a random sample of 150 borrowers with the change in that variable in a control group of 150 nonborrowers whose incomes, asset holdings, and access to infrastructure were similar to the borrower group’s. This note describes the results of their study.