Fixing MFI Flaws to reach the poorest poor
There have been many criticisms of microfinance as an ineffective way of reaching out to the poorest of the poor. The problems cited:
-MFIs deliberately avoid the poorest whom they believe can never repay loans
-loans that would help the poorest would be too small to be profitable even for small MFIs
-loans are intimidating to the poorest poor who have no experience with credit
-MFIs often require collateral to ensure repayment–which the poorest people simply do not have.
So, is alleviation of poverty for the very poorest people decidedly unprofitable? Not necessarily. It looks like in some places MFIs have learned how to make credit accessible to everyone and still be profitable. One Kenyan MFI replaced the requirement for collateral with a kind of community “voucher.” One Nextbillion member references a strategy of linking poor and richer communities. In Haiti, the Fonkoze MFI tried a “little credit” program of just $30 loans-which failed–and then , after consulting with the Banglandesh Rural Advancement Committee, took a different approach: social services (such as health care) combined with close case supervision and lessons in entrepreneurship. This model requires some subsidization, but eventually “graduates” people to a sustainable microcredit. This confirms that microcredit is far from a quick, easy solution–see Nextbillion’s article from last week about how social services must be included with microloans to be useful for poverty alleviation in the long-term.