Defining Poverty Assessment for Microfinance Institutions: A Framework to Discuss

This paper develops a poverty measurement system to estimate the depth of outreach for MFIs working in Bolivia.

Lack of data and unsuitable management information systems (MIS) often constrain MFIs in defining the depth of poverty. The paper:

• Proposes an integrated poverty approach composed of different indicators and based on methodologies used in Bolivia;
• Tests measurement system by using survey data for 2001-2002 from ANED, a Bolivian MFI;
• Examines role of program participation in poverty alleviation;
• Aims to strengthen evidence related to depth of outreach for MFIs in Bolivia;
• Examines credit portfolio compositions in terms of poverty levels and client characteristics;
• Emphasizes the importance of using poverty assessment schemes as management tools in microfinance.

MFIs could use the poverty measurement system to understand their customers’ poverty levels and financial needs. They could use the information collected to monitor program impact on clients and to complement MIS data. Knowing clients in terms of household and individual characteristics helps MFIs to design products and services that meet the financial needs of customers, reduce costs and risks and improve social welfare.