Towards Enhancing the Role of Microfinance for Safety Nets of the Poor

Many of the poor borrow, more save, and most of them demand insurance products or related substitutes. However, most of these financial products, especially those catering towards the need for consumption stabilization are only offered by the informal market.

This paper suggests that:

• MFIs that wish to increase their relevance for the poor should innovate with financial services for income and consumption smoothing;
• Public action can help promote innovations by supporting pilot projects and related action research.

It is also recommended that evaluations of MFIs that receive financial support by government or donors so as to make a contribution to the alleviation of poverty should verify whether the MFI provides financial products for income and consumption smoothing, such as:

• Precautionary savings services;
• Emergency credit;
• Insurance services;
• Implicit insurance substitutes.

Overall, such checks can be undertaken at low cost by simply looking at the terms of the financial products currently offered, and can identify other poverty-oriented product innovations that can be easily implemented and help increase the business volume and profitability of the MFI.