Track Record of Financial Institutions in Assisting the Poor in Asia

Abstract

Major investments have been made in developing microfinance in Asia with reducing poverty as one of the frequently stated objectives. A variety of institutional forms of microfinance are being introduced in the region including by the ADBand financial institutions pursue different objectives, so it is difficult to assess how well microfinance is actually contributing to poverty alleviation. There is little systematic data available on which to make global or regional generalizations. The objective of this paper is to provide some insights into how well the industry is performing by summarizing and evaluating key studies and data for the region. A critical triangle of microfinances, including outreach, sustainability and impact, is used as the conceptual framework to organize the presentation. Criteria are defined for these three objectives and methodological problems are discussed for each. Evaluating impact presents the most serious empirical challenge. The results reveal that outreach is quite impressive, especially in Bangladesh and Indonesia. Millions of poor households in the region are now receiving formal financial services because of the expansion of microfinance. Financial sustainability, however, is an important problem facing the industry in most countries. Many microfinance institutions still depend on government and donor subsidies for their existence. The impact studies reviewed reported some positive benefits but they vary by gender, type of program and country. Several implications of these findings for microfinance institutions and decision makers are discussed.