1

Is There a Difference in Poverty Outreach by Type of

Microfinance Institution? The Case of Peru and Bangladesh

Manfred Zeller Institute of Agricultural Economics and Social Sciences in the

Tropics and Subtropics University of Hohenheim, Stuttgart, Germany

Julia JohannsenInstitute of Rural Development

Georg-August-University Göttingen, Germany

Global Conference on ‘Access to Finance: Building Inclusive Financial Systems’

of The World Bank and the Brookings Institution in Washington, D.C.,

May 30 and 31, 2006

2

Outline of presentation

• Changing paradigms and policy objectives in development finance

• Types of financial institutions• Sampling design and poverty lines

• Poverty outreach of MFIs– Bangladesh– Peru (national and MFI sample)

• Conclusions

3

The triangle of finance: Synergies and trade-offs

Outreach (Breadth and Depth)

Welfare impact (Direct/Indirect)

Financial sustainability

Source: Zeller, M., and Meyer, R.L. 2002. The triangle of microfinance: Financial sustainability, outreach, and impact. Book published by IPPRI/John Hopkins Univ, Dec. 2002.

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Types of financial institutions

• Semi-formal Institutions (NGO-MFIs)• Member-based institutions:

(1) Credit unions (2) Village banks (supported by NGOs)

• Micro-banks, lending technologies: Individual and solidarity group lending,linkage model (with pre-existing self-help groups)

• Other: (1) Public banks (sectoral, agricultural, rural) (2) private commercial banks with MF

windows

5

Sampling design

• Nationally representative self-weighing sample of 800 households (IRIS Center)

• Multi-stage cluster sampling• Probability-proportionate-to-size (PPS) • Bangladesh: 10 counties (Thanas) in 5 divisions (x 80 hhs)• Peru: 8 of 24 departments (x 100 hhs), controlling for 7

geographic areas (rural/urban macro-regions):- Lima Metropolitan, Urban/Rural Coast, Urban/Rural

Highland, Urban/Rural Lowland

• Peru: 6 purposefully selected MFIs (1175 client hhs)

6

Poverty lines in Peru

4.16

4.16

4.16

4.16

4.16

4.16

4.16

2.08

2.08

2.08

2.08

2.08

2.08

2.08

8.45

6.99

4.75

6.01

3.93

5.81

4.04

5.98

4.68

3.04

4.04

2.38

3.83

2.60

Lima Metrop.

Urban Coast

Rural Coast

Urban Highland

Rural Highland

Urban Highland

Rural Lowland

Internat. 2$ Poverty

Line

(Soles/pers/day)

Internat. $1 Poverty

Line

(Soles/pers/day)

National Poverty

Line

(Soles/pers/day)

Median Poverty

Line

(Soles/pers/day)

Expenditures July 2004

Region

Source: adapted from Zeller, Johannsen and Alcaraz (2005)

Regionally disaggregated national and median poverty line and international $2 and $1-poverty line

7

Poverty lines in Bangladesh

23.10

23.10

23.10

23.10

23.10

23.10

23.10

23.10

22.96

17.05

21.84

20.94

24.85

19.47

20.16

17.57

24.80

22.24

27.77

27.06

30.22

23.18

25.97

21.90

Rural Dhaka

Rural Faridpur, Tangali, Jamalpur

Rural Sylhet, Comilla

Rural Noakhali, Chittagong

Urban Khulna

Rural Barishal, Pathuakali

Rural Rajshahi, Pabna

Rural Bogra, Rangpur, Dinajpur

Internat. $1 Poverty

Line

(Taka/pers/day)

Median Poverty

Line

(Taka/pers/day)

National Poverty

Line

(Taka/pers/day)

Expenditures July 2004

Region

Source: adapted from Zeller, Johannsen and Alcaraz (2005)

Regionally disaggregated national and median poverty line and $1-poverty line

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Gender and residence of clients in Bangladesh (N=2209 adults)

(100%)53.0% 47.0%21.6% 78.4%Total

49.6% 50.4%19.8% 80.2%Non-clients

2.7%53.8% 46.2%69.2% 30.8%Other (private bank, coop, etc.)

4.7%54.2% 45.8%8.3% 91.7%Other governmental institution providing microfinance

28.7%7.6% 92.4%16.0% 84.0%Public bank

63.9%90.5% 9.5%32.6% 67.4%NGOs providing microfinance

Share (%) of total

clients

Sex of client

FEMALE MALE

Does client live in rural area?

NO YESMain type of financial institution

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Poverty outreach in Bangladesh

27.835.116.637.2MeanTotal (N=2209)

28.135.716.537.1MeanNon-clients (N=1700)

30.830.830.839.2MeanOther (private bank, coop, etc.)

8.38.38.352.7MeanOther government institutions providing microfinance(N=24)

16.725.07.642.2MeanPublic bank (N=144)

32.338.721.034.6MeanNGOs providing microfinance (N=328)

Below the internat.

Poverty line ($PPP 1.08

at 1993 prices)

Below the national

poverty line (adj. by

regions)(%)

Below the median

poverty line (adj. by

regions)(%)

Daily expenditures

per capita (Taka)

Main type of financial institution

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Poverty by length of membership

27.835.116.637.2MeanTotal (N=2209)

28.135.616.537.1MeanNon-clients (N=1700)

17.020.18.842.8MeanLonger than five years

(N=159)

29.038.520.037.4MeanTwo to Five years

(N=200)

34.040.021.332.7MeanLess than two years

(N=150)

Below the internat.

Poverty line ($PPP 1.08

at 1993 prices)

Below the national

poverty line (adj. by regions)

(%)

Below the median

poverty line (adj. by

regions) (%)

Daily expenditures

per capita (Taka)

Length of client relationship (in approx. terciles)

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Gender and residence of clients in Peru (N=2325 adults)

(100.0%)48.6% 51.4%71.0% 29.0%Total

47.0% 53.0%70.1% 29.9%Non-clients

16.6%72.0% 28.0%72.0% 28.0%Other (NGO, rural savings banks, coop, etc.)

23.2%77.1% 22.9%74.3% 25.7%Municipal Savings and Loan Banks (CMACs)

37.7%75.4% 25.7%93.0% 7.0%Private banks (including micro-banks such as MiBanco)

22.5%58.8% 41.2%88.2% 11.8%Public bank (Banco de la Nacion)

Share (%) of total

clients

Sex of client

FEMALE MALE

Does client live in rural

area?

NO YES

Main type of financial institution

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Poverty outreach in Peru

9.1

9.6

8.0

0.0

0.0

2.9

Below the internat. Poverty

line($PPP 1.08 at 1993

prices)

32.051.728.07.4MeanTotal (N=2325)

33.553.629.27.2MeanNon-clients (N=2174)

20.028.08.010.3MeanOther (NGO, rural savings bank, coop, etc.) (N=25)

2.925.70.09.4MeanMunicipal Savings and Loan Banks (N=35)

3.521.18.811.8MeanPrivate banks (including MiBanco) (N=57)

23.526.523.510.2MeanPublic bank (Banco de la Nacion) (N=34)

Below the internat. Poverty

line($PPP 2.16 at 1993

prices)

Below the national poverty line(adj.

by regions)

(%)

Below the median poverty line(adj.

by regions)

(%)

Daily expenditures

per capita (Soles)

Main type of financial institution

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Poverty rate, by participation in formal savings

32.510.050.426.97.6MeanTotal (N=800)

11.42.921.45.712.8MeanYES (N=70)

34.510.753.228.97.0MeanNO (N=730)

Below the internat. Poverty

line($PPP 2.16 at 1993

prices)

Below the internat. Poverty

line($PPP 1.08 at 1993

prices)

Below the national poverty line(adj.

by regions)

(%)

Below the median poverty line(adj.

by regions)

(%)

Daily expenditures

per capita (Soles)

Household has a formal savings account

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6 selected MFIs

• EDYFICAR, registered NGO (non-bank financial institution, only credit)

• CRAC Cruz de Chalpon (rural savings and loan bank)

• CMAC Chincha (municipal savings and loan bank)• Coop San Isidro Huaral (cooperative)• Coop San Pedro Andahuaylas (cooperative)• CARITAS (NGO)

• none with explicit women targeting• only San Pedro and Caritas with rural/poverty

targeting objective

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Poverty outreach of 6 MFIs

44.543.516.06.4Coop San Pedro Andahuaylas (N=200)

1.515.54.012.2Coop San Isidro Huaral (N=200)

6.022.05.510.3Caritas (N=200)

6.038.58.010.2CMAC Chinca (N=200)

9.723.412.611.5CRAC Cruz de Chalpon (N=175)

2.541.016.510.7Edyficar (N=200)

Below the internat.

Poverty line ($PPP 2.16 at 1993 prices)

Below the national

poverty line (adj. by

regions) (%)

Below the median

poverty line (adj. by

regions) (%)

Daily expenditures

per capita (Soles)

Main type of financial institution

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Conclusions-1

• Main institution types in samples (legal status):- (semi-formal) NGOs/solidarity groups,

cooperatives (member-based, peer pressure) - public banks, private banks, micro-banks

(information asymmetry)• Bangladesh: 46% client households

- NGOs! (solidarity group lending)• Peru: 19% client households

- heterogeneous sector (transformed in 90s, micro-banks!)

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Conclusions-2

• Bangladesh: higher breadth of outreach! - microfinance since 1970s- high population density, low administrative costs

• Peru:- mistrust in formal institutions: inflations 1980s (savings

losses!), guerilla war 1980s-90s- heterogeneous geography (Andes, rainforest)

• Bangladesh: higher depth of outreach, NGO-MFIs! Peru: cooperatives!

- length of membership: 5 yrs vs. 3 yrs (Peru)->mutual trust

- declining poverty pattern with increasing length of membership

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Conclusions-3

• Bangladesh: 29% saving hhs, Peru: 9% • mainly demand constraints by poor for existing

savings products

-> Does institution type really matter? - mission!: management emphasis (triangle!)- ownership -> social investors- targeting strategy: rural, women, poor; instruments?

- social capital/ pressure (member-based institutions)

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THIS IS THE END …

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Old versus new paradigm• Old paradigm of sector-directed, supply-led

and subsidized credit:– faulty assumptions about demand (i.e. “need”)– focus not on financial sustainability of institution, but on

(depth) of outreach. Impact was assumed.

• New paradigm: – focus on institution and systems building – liberalization of financial markets as necessary but not

sufficient condition for deepening financial systems need institutional and technological innovations to reduce transaction costs

– Demand orientation, three objectives

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Relative poverty outreach of Grameen Bank, by expenditure terciles

100.0%Total

31.6%3

33.3%2

35.1%1

Client households of Grameen Bank

Tercile of daily per-capita expenditures from geographic subsample of

nationally representative sample (N=400)

22

Relative poverty outreach of BRAC, by expenditure terciles

100.0%Total

20.0%3

32.0%2

48.0%1

Client households of BRAC

Tercile of daily per-capita expenditures from geographic subsample of

nationally representative sample (N=559)

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Relative poverty outreach in Bangladesh

21.5%

19.9%

19.2%

21.3%

18.2%

100.0%

24.1% 7.3% 37.5%

22.8% 18.7%

21.5% 21.1% 25.0%

16.2% 21.1% 25.0% 37.5%

15.4% 31.7% 50.0% 25.0%

100.0% 100.0% 100.0% 100.0%

1

2

3

4

5

Total

Non-clients

(N= 428)

Main type of financial institution

NGOs Public Other government Other

providing bank institution (private

microfinance providing bank,

microfinance coop, etc.)

(N=228) (N=123) (N=12) (N=8)

Quintile of daily per-capita expenditures from nationally representative sample

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Relative poverty outreach in Peru

22.4%

21.1%

19.7%

18.6%

18.1%

100%

8.7% 11.8%

26.1% 7.9% 3.7% 17.6%

23.6% 40.7% 11.8%

43.5% 18.4% 29.6% 35.3%

21.7% 47.4% 25.9% 23.5%

100.0% 100.0% 100.0% 100.0%

1

2

3

4

5

Total

Non-clients

Main type of financial institution

Public bank Private banks Municipal Other

(Banco de (includes Savings and (NGO, rural

la Nacion) micro-banks) Loan Bank savings bank,

(CMACs) coop, etc.)

Quintile of daily per-capita expenditures from nationally representative sample (N=800)

25

Poverty by length of membership

32.09.151.728.07.4MeanTotal (N=2325)

33.59.653.629.27.2MeanNon-clients (N=2174)

9.80.013.77.812.6MeanLonger than 1 year and 7 months (N=51)

8.24.126.510.210.2MeanLonger than 1 year and less than or equal to 1 year and 7 months (N=49)

13.71.033.311.89.1MeanLess than or equal to 1 year (N=51)

Below the internat. Poverty

line($PPP 2.16 at 1993

prices)

Below the internat. Poverty

line($PPP 1.08 at 1993

prices)

Below the national poverty line(adj.

by regions)

(%)

Below the median poverty line(adj.

by regions)

(%)

Daily expenditures

per capita (Soles)

Length of client relationship (in approx. Tercile ranges)