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Learning Curves

OED
September 2007

Microfinance,PoorRural Households,andWomen

Microfinanceisthepracticeofprovidingfinancialservicestopoorpeople.Asthename suggests,mosttransactionsinvolvesmallamountsofmoney,frequentlylessthan$100. Microfinancehasgrownsincethe1970s,spurredbyinstitutionssuchastheGrameenBank. Microfinancereferencesattesttotherolethatitplaysindevelopment,andtheUnited Nationsproclaimed2005TheInternationalYearofMicrocredit. ADBfirstofferedmicrofinanceservicesforthepoorin1988.Byend2006,ithadapproved 32microfinanceprojectsand20projectswithmicrofinancecomponents.Theseinvolved $1,012millioninloansand$6millioningrants,andtookplacein16countries.Morethan halfoftheprojectswereapprovedafter2000,andaccountedfortwothirdsofADBslending formicrocredit.Towhatextenthavetheyreducedthepovertyofpoorruralhouseholds? Whatpotentialdoesmicrofinanceholdtoimprovethesocioeconomicstatusofwomen?
Background In2000,theAsiandevelopmentBank(ADB) formulatedamicrofinancedevelopmentstrategy.The goalistoensurepermanentaccesstoinstitutional financialservicesforamajorityofpoorandlowincome householdsandtheirmicroenterprises.Thepurposeis tosupportthedevelopmentofsustainablemicrofinance systemsthatcanprovidediverseservicesofhigh quality.Therefore,thestrategyfocuseson(i)creatinga policyenvironmentconducivetomicrofinance,(ii) developingfinancialinfrastructure,(iii)buildingviable institutions,(iv)supportingpropoorinnovations,and (v)supportingsocialintermediation. ADBsmicrofinanceportfolioisnowlarge.In2007, theOperationsEvaluationDepartmentconducteda SpecialEvaluationStudyontheEffecton MicrofinanceOperationsonPoorRuralHouseholds andtheStatusofWomentodeterminehoweffective itsprojectshadbeeninreducingruralpovertyand improvingthestatusofwomen;assesstheextentto whichtheyhadmainstreamedconcernsregarding womeninprojectdesignandimplementation;and drawlessonstoimprovethedesignofprojectsandthe directionofADBsmicrofinanceoperations. 1 Bangladesh,Philippines,andUzbekistanwere selectedforindepthanalysis.There,thestudyinvolved useofcomparisongroupstodefinecounterfactual outcomes,andapplicationofeconometrictechniquesto estimateimpactsonruralhouseholds.Italsoapplied qualitativetools(viz.,participatoryfocusgroup discussionsandvariedsamplesurveysofwomen participatinginmicrofinanceprograms). SummaryofFindings InthePhilippines,thestudyexaminedtheRural MicroenterpriseFinanceProject,approvedin1996.In Bangladesh,itselectedtheParticipatoryLivestock DevelopmentProject,RuralLivelihoodProject,and SecondParticipatoryLivestockDevelopmentProject approvedin1997,1998,and2003,respectively.In Uzbekistan,itreviewedtheSmallandMicrofinance DevelopmentProjectapprovedin2002. Theoutreachofthefiveprojectsstudiedranged fromlowincometopoorhouseholds.Thebeneficiaries didnotincludealargenumberfromtheultrapoor despitethreeofthefiveprojectsbeingdesignedtofocus onservingthiscore.Thispracticalfindingontargeting, andtheregressiveimpactfoundintheprojectinthe Philippinesandreportedinotherstudies,raisesthe questionofwhetherADBshouldcontinuetosupport

Operations Evaluation Department Asian Development Bank

6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444; evaluation@adb.org; www.adb.org/evaluation/

microfinanceprojectsdesignedspecificallytotargetthe ultrapoor. Theresultsoffocusgroupdiscussionsindicatedthat theprojectshadhadencouraging,quitepositiveeffects onthestatusofwomen,particularlyinthehousehold. Theyhadledto:(i)agreaterroleinhousehold generationofcash,(ii)greaterinvolvementinmaking majorexpendituredecisionsandgeneratingcash savings,(iii)increasedabilitytogeneratemoreincome ontheirownandgreaterroleinbusinessdecision making,(iv)acquisitionofmoreskillsandexpansionof networkoffriendsandsupportsystems,and(v) increasedacquisitionofassets.Theseobservationswere supportedbytheresultsofthesamplesurveysin BangladeshandthePhilippinesofwomenthathad participatedinmicrofinanceprograms.Theseshowed anincreasedroleofwomeninaccessingfinanceand managingtheirbusinesses;andimprovedrelationships betweenhusbandsandwivesinjointdecisionmaking andsharingofhouseholdresponsibilities. Thefiveprojects,toalargeextent,mainstreamed improvingthestatusofwomenintheirdesignand implementation.Thedesignsspecifiedmeasurable indicatorsandtargetsfortheparticipationofwomen andactivitiestodeveloptheirentrepreneurialskills. Theroleofwomenintheirrespectivesocietieswasalso analyzedtoidentifygenderissues.Thestudyfound thatprojectdesigncanbeimprovedfurtherby includingmoregenderdisaggregatedtargetsand indicatorsintheprojectframework,andbyproviding explicitdiscussionoftheparticipationofwomeninthe designandimplementationprocess.Impactscouldbe strengthenedifthequalityofclientsubprojects, particularlyamongthepoorerclients,wereimproved togeneratehigherprofitsthusincreasinghousehold incomes.Theentrepreneurialcapacityandskillsofthe poorneedtobedevelopedtoincreasetheirabilitiesto undertakeandmanageincomegeneratingactivities. Thestudydrewvaluablelessonsfromtheindepth analysesitconducted.First,thecharacteristicsand mandateofparticipatingmicrofinanceinstitutionshave importantbearingsonthetargetingofpoorhouseholds. Theirinstitutionalorientationsmustmatchthe developmentgoalinprojectdesigns.Financial institutionsthatarehighlyregulated,e.g.,savingsand creditunionsinUzbekistan,canhavelimitedoutreach tothepoorersegmentsofthelowincomepopulation. Second,planningtoreachlargenumbersoftheultra poorwithmicrofinancealonemaynotbearealistic objective.Specialprogramsmaybeneededthatprovide
Learning Curves available @ www.adb.org/evaluation/

theultrapoorwitharangeofservicescoveringtraining, healthprovision,andmoregeneralsocialdevelopment forthedisadvantaged,aswellasgrantsofassetsor credits.InstitutionsinBangladesh,e.g.,theBangladesh RuralAdvancementCommitteeandtheAssociation forSocialAdvancement,haveinitiatedsuchprograms. Third,theabsenceofbaselinedataisaseriousissue forundertakinganimpactevaluation.Toimprovethe qualityofsuchevaluations,selectedmicrofinance projectsshouldbudgetforbaselineaswellaspost interventiondatacollection,whichwouldincludenot onlytreatmenthouseholdsbutalsocontrolhouseholds. Giventhecostofsuchsurveys,theyshouldnotbe routinelyincludedinallmicrocreditprojects. Fourth,concernformainstreamingthestatusof womeninthedesignofmicrofinanceprojectssuggest thatitisusefultoincludeagenderactionplan includingtargets,specificactivities,monitoringand evaluationindicators,andbudgetallocations.Itisalso importanttoinvolvegenderspecialistsinprojectdesign, implementation,andmonitoringandevaluationtohelp ensurebetterintegrationofgenderandwomens concernsinprojectcomponents. Recommendations ThestudyrecommendedthatADB,whenitreviews thestrategyin2008,shouldbearinmindtheneedto: Adoptamorefocusedanddeliberateapproachin targeting. Useinternationallyacceptedguidelinesand principlesforthedesignofmicrofinanceprojects. Buildstafftechnicalcapacityinmicrofinance. Includeplansforrigorousimpactevaluations duringtheformulationofselectedmicrofinance projects. Feedback WhentheseLearningCurveswereprepared,ADB ManagementsResponseandtheChairsSummaryof theDevelopmentEffectivenessCommittee Discussionswerenotavailablefordisclosuretothe public.ThestudywascompletedinSeptember2007. 1 2007.ADB.SpecialEvaluationStudyontheEffecton MicrofinanceOperationsonPoorRuralHouseholdsand theStatusofWomen.Manila.Available: http://www.adb.org/Documents/SES/REG/SSTREG 200719/SSTREG200719.pdf

Team Leader: Toshio Kondo; Tel +63 2 632 4124; tkondo@adb.org

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