Making Microfinance Work: Evidence from Evaluations

Publication Date: 
November, 2010

Document Type:

ECG Paper #2

Multinational development banks (MDBs) have played an important role in the evolution of the industry, initially seeing it as an important instrument for poverty targeting and more specifically for targeting at poor female borrowers, and more recently as a means of expanding the access of poor households and microenterprises to a range of financial services.

By carefully reviewing the evaluation findings and related recent research work on microfinance, the paper highlights that successful microfinance operations require:

  1. Financial sustainability on the part of the participating microfinance institutions,
  2. High-standard consultancy and technical assistance,
  3. Sound regulation and monitoring, and
  4. Flexibility in product design.

However, to reach the very poor requires careful design and a means of preparing them for full participation. The paper recommends that MDBs use microfinance development programs for reaching the very poor through "graduation programs,” including basic immediate help, training, and integrating them into microfinance programs. They can provide both credit and technical assistance to microfinance institutions for ensuring their efficiency and sustainability. However, MDBs should avoid saturating microfinance markets and should ensure that their funds do not displace private sources.