Appraising the Poverty Outreach of Microfinance
This paper, aimed at donors, policy makers and practitioners interested in assessing the poverty levels of microfinance clients, reviews the CGAP Poverty Assessment Tool or PAT. The PAT looks at the poverty levels of clients compared to non-clients in the same community and does not measure absolute poverty by itself. It is an effective measurement tool which allows for comparisons across regions and communities. The key to this are the four output ratios that PAT generates:
- Ratio One: for representing clients in the poorest tercile; higher values show more extensive outreach to the poorest households in the local area.
- Ratio Two: for representing clients who are included in the top tercile (the better-off); higher values show a greater outreach to the better off.
- Ratio Three: for judging how poor the operational area of the microfinance organization (MFO) is in comparison with other regions of the country; a score below one indicates that poorer regions are being reached.
- Ratio Four: for comparing the poverty level at a national level with other countries; a value below one indicates that the country is poorer than average for developing countries.
The paper highlights the potential applications of this tool:
- donor appraisal for assessing whether their funds reach the intended beneficiaries,
- assessment of MFO markets,
- assessment of the effectiveness of MFOs in reaching the poorer clients.
The paper also presents issues to be considered in using PAT and in further developing the tool. Finally, the paper proposes an important additional use for PAT in validating and improving the credibility of low-cost practitioner assessment and monitoring tools.
