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

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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

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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)

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Poverty lines in Peru

Expenditures July 2004

Region

Median Poverty

Line

(Soles/pers/day)

National Poverty

Line

(Soles/pers/day)

Internat. $1 Poverty

Line

(Soles/pers/day)

Internat. 2$ Poverty

Line

(Soles/pers/day)

Lima Metrop.

Urban Coast

Rural Coast

Urban Highland

Rural Highland

Urban Highland

Rural Lowland

5.98

4.68

3.04

4.04

2.38

3.83

2.60

8.45

6.99

4.75

6.01

3.93

5.81

4.04

2.08

2.08

2.08

2.08

2.08

2.08

2.08

4.16

4.16

4.16

4.16

4.16

4.16

4.16

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

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

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Poverty lines in Bangladesh

Expenditures July 2004

Region

National Poverty

Line

(Taka/pers/day)

Median Poverty

Line

(Taka/pers/day)

Internat. $1 Poverty

Line

(Taka/pers/day)

Rural Dhaka

Rural Faridpur, Tangali, Jamalpur

Rural Sylhet, Comilla

Rural Noakhali, Chittagong

Urban Khulna

Rural Barishal, Pathuakali

Rural Rajshahi, Pabna

Rural Bogra, Rangpur, Dinajpur

24.80

22.24

27.77

27.06

30.22

23.18

25.97

21.90

22.96

17.05

21.84

20.94

24.85

19.47

20.16

17.57

23.10

23.10

23.10

23.10

23.10

23.10

23.10

23.10

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)

Main type of financial institution

Does client live in rural area?

NO YES

Sex of client

FEMALE MALE

Share (%) of total

clients

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

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

Other governmental institution providing microfinance

8.3% 91.7% 54.2% 45.8% 4.7%

Other (private bank, coop, etc.)

69.2% 30.8% 53.8% 46.2% 2.7%

Non-clients 19.8% 80.2% 49.6% 50.4%

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

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Poverty outreach in Bangladesh

Main type of financial institution

Daily expenditures

per capita (Taka)

Below the median

poverty line (adj. by

regions)(%)

Below the national

poverty line (adj. by

regions)(%)

Below the internat.

Poverty line ($PPP 1.08

at 1993 prices)

NGOs providing microfinance (N=328)

Mean 34.6 21.0 38.7 32.3

Public bank (N=144) Mean 42.2 7.6 25.0 16.7

Other government institutions providing microfinance(N=24)

Mean 52.7 8.3 8.3 8.3

Other (private bank, coop, etc.)

Mean 39.2 30.8 30.8 30.8

Non-clients (N=1700) Mean 37.1 16.5 35.7 28.1

Total (N=2209) Mean 37.2 16.6 35.1 27.8

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Poverty by length of membership

Length of client relationship (in approx. terciles)

Daily expenditures

per capita (Taka)

Below the median

poverty line (adj. by

regions) (%)

Below the national

poverty line (adj. by regions)

(%)

Below the internat.

Poverty line ($PPP 1.08

at 1993 prices)

Less than two years

(N=150)

Mean 32.7 21.3 40.0 34.0

Two to Five years

(N=200)

Mean 37.4 20.0 38.5 29.0

Longer than five years

(N=159)

Mean 42.8 8.8 20.1 17.0

Non-clients (N=1700) Mean 37.1 16.5 35.6 28.1

Total (N=2209) Mean 37.2 16.6 35.1 27.8

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

Main type of financial institution

Does client live in rural

area?

NO YES

Sex of client

FEMALE MALE

Share (%) of total

clients

Public bank (Banco de la Nacion)

88.2% 11.8% 58.8% 41.2% 22.5%

Private banks (including micro-banks such as MiBanco)

93.0% 7.0% 75.4% 25.7% 37.7%

Municipal Savings and Loan Banks (CMACs)

74.3% 25.7% 77.1% 22.9% 23.2%

Other (NGO, rural savings banks, coop, etc.)

72.0% 28.0% 72.0% 28.0% 16.6%

Non-clients 70.1% 29.9% 47.0% 53.0%

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

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Poverty outreach in Peru

Main type of financial institution

Daily expenditures

per capita (Soles)

Below the median poverty line(adj.

by regions)

(%)

Below the national poverty line(adj.

by regions)

(%)

Below the internat. Poverty

line($PPP 1.08 at 1993

prices)

Below the internat. Poverty

line($PPP 2.16 at 1993

prices)

Public bank (Banco de la Nacion) (N=34)

Mean 10.2 23.5 26.5 2.9 23.5

Private banks (including MiBanco) (N=57)

Mean 11.8 8.8 21.1 0.0 3.5

Municipal Savings and Loan Banks (N=35)

Mean 9.4 0.0 25.7 0.0 2.9

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

Mean 10.3 8.0 28.0 8.0 20.0

Non-clients (N=2174) Mean 7.2 29.2 53.6 9.6 33.5

Total (N=2325) Mean 7.4 28.0 51.7 9.1 32.0

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Poverty rate, by participation in formal savings

Household has a formal savings account

Daily expenditures

per capita (Soles)

Below the median poverty line(adj.

by regions)

(%)

Below the national poverty line(adj.

by regions)

(%)

Below the internat. Poverty

line($PPP 1.08 at 1993

prices)

Below the internat. Poverty

line($PPP 2.16 at 1993

prices)

NO (N=730) Mean 7.0 28.9 53.2 10.7 34.5

YES (N=70) Mean 12.8 5.7 21.4 2.9 11.4

Total (N=800) Mean 7.6 26.9 50.4 10.0 32.5

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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

Main type of financial institution

Daily expenditures

per capita (Soles)

Below the median

poverty line (adj. by

regions) (%)

Below the national

poverty line (adj. by

regions) (%)

Below the internat.

Poverty line ($PPP 2.16 at 1993 prices)

Edyficar (N=200) 10.7 16.5 41.0 2.5

CRAC Cruz de Chalpon (N=175) 11.5 12.6 23.4 9.7

CMAC Chinca (N=200) 10.2 8.0 38.5 6.0

Coop San Isidro Huaral (N=200) 12.2 4.0 15.5 1.5

Coop San Pedro Andahuaylas (N=200)

6.4 16.0 43.5 44.5

Caritas (N=200) 10.3 5.5 22.0 6.0

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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

Tercile of daily per-capita expenditures from geographic subsample of

nationally representative sample (N=400)

Client households of Grameen Bank

1 35.1%

2 33.3%

3 31.6%

Total 100.0%

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Relative poverty outreach of BRAC, by expenditure terciles

Tercile of daily per-capita expenditures from geographic subsample of

nationally representative sample (N=559)

Client households of BRAC

1 48.0%

2 32.0%

3 20.0%

Total 100.0%

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Relative poverty outreach in Bangladesh

Quintile of daily per-capita expenditures from nationally representative sample

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)

Non-clients

(N= 428)

1

2

3

4

5

Total

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%

21.5%

19.9%

19.2%

21.3%

18.2%

100.0%

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Relative poverty outreach in Peru

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

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.)

Non-clients

1

2

3

4

5

Total

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%

22.4%

21.1%

19.7%

18.6%

18.1%

100%

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Poverty by length of membership

Length of client relationship (in approx. Tercile ranges)

Daily expenditures

per capita (Soles)

Below the median poverty line(adj.

by regions)

(%)

Below the national poverty line(adj.

by regions)

(%)

Below the internat. Poverty

line($PPP 1.08 at 1993

prices)

Below the internat. Poverty

line($PPP 2.16 at 1993

prices)

Less than or equal to 1 year (N=51)

Mean 9.1 11.8 33.3 1.0 13.7

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

Mean 10.2 10.2 26.5 4.1 8.2

Longer than 1 year and 7 months (N=51)

Mean 12.6 7.8 13.7 0.0 9.8

Non-clients (N=2174) Mean 7.2 29.2 53.6 9.6 33.5

Total (N=2325) Mean 7.4 28.0 51.7 9.1 32.0