Graduating the Poorest into Microfinance: Linking Safety Nets and Financial Services

This focus note explores grant-funded safety-net programs, where the poorest receive non-financial support such as employment, food aid, and training. They also get support to graduate from their existing levels of poverty to a level where they can make good use of appropriate financial services.The note outlines features and advantages of safety-net programs, describing two basic models of linkages between MFIs and safety net programs. In one model, safety net programs develop basic financial services for their clients to better manage their livelihoods. In the second model, the MFI establishes a separate subsidiary that works directly with safety-net participants.The focus note states that links can be effectively established between existing subsidized safety-net programs and microfinance programs. Properly structured support programs hold great potential as a pathway to microfinance. Successful programs include:

• Relying on a separate professional agency to implement subsidized grant programs;
• Ensuring participants understand the need for discipline;
• Starting financial services with savings and simple loans for easy economic activities;
• Providing skills training, business advice and information on financial institutions;
• Identifying enterprising participants for graduation to MFI services.