Is There a Difference in Poverty Outreach by Type of Microfinance Institution? The Case of Peru and Bangladesh

This paper focuses on the outreach of different types of microfinance institutions (MFIs), considering as examples major MFIs in Bangladesh and Peru. The paper:

• Explains the potential trade-offs and synergies between outreach, financial sustainability, and impact of MFIs,
• Describes different types of MFIs and examines their comparative advantages in reaching a poor clientele, especially in rural areas,
• Uses data from nationally representative household expenditure surveys in Bangladesh and Peru.

The paper states that:

• 46% percent of the 799 households sampled in Bangladesh and only 19% percent of the 800 sampled households in Peru are clients of financial institutions,
• Their demand is for credit services, not savings or insurance,
• In Bangladesh, a dominant share of financial services is provided by non-government organizations (NGOs),
• Micro-banks provide the bulk of microfinance in Peru,
• The administrative costs of granting small loans to poor in Bangladesh are much lower than in Peru, thus enabling a greater breadth of outreach in Bangladesh,
• Member-based organizations, namely cooperatives in Peru and NGO-MFIs in Bangladesh, perform best with respect to depth of poverty outreach,
• Poverty outreach differs by type of MFI.

The paper concludes that the other features of an MFI that could influence the observed poverty outreach are:

• The mission of the institution,
• Targeting strategy,
• The employment of social capital and social pressure,
• Institutional and technological innovations.