Microfinance Impact and the MDGs: The Challenge of Scaling-up

This paper considers the potential for microfinance to make a difference in the achievement of the Millennium Development Goals (MDGs). The paper argues that:

• Microfinance can contribute to MDGs through scaling-up of microfinance service provision;
• In developing countries, microfinance services are increasingly driven by commercial investors;
• They do not assess MFI performance according to MDG criteria;
• They use social criteria, or refer to a double bottom line of financial and social performance;
• These have little or nothing to do with MDGs;
• Empirical evidence clearly shows that MFIs that do not target poor households will not make any difference to MDG attainment;
• MFIs with a social mission focused on poverty reduction face a genuine difficulty;
• To expand coverage to poor households they seek financial support in the form of loans or equity;
• They concentrate on financial performance at the cost of their social mission;
• Thus, commercial funding may mean less attention to poor households in microfinance delivery.

The paper concludes that the microfinance industry has to manage scaling-up without losing sight of its social purposes. It recommends:

• Client-level assessment by MFIs that can ensure:
  • Targeting of poor households;
  • Monitoring of the impact of microfinance on their poverty status.
• The development of a social performance monitoring system based on client assessment that can ensure the establishment and maintenance of MFI impact on MDGs.