Microfinance Poverty Assessment Tool

Abstract

The Microfinance Poverty Assessment Tool was developed as a much-needed tool to increase transparency on the depth of outreach of microfinance institutions (MFIs). It is intended to assist donors and investors to integrate a poverty focus into their appraisals and funding of financial institutions through a more precise understanding of the clients served by these institutions. Used in conjunction with an institutional appraisal of financial sustainability, governance, management, staff and systems, a poverty assessment allows for a more holistic understanding of an MFI. The Tool provides accurate data on the poverty levels of MFI clients relative to people living in the same community. It uses a more standardized, globally applicable, and rigorous set of indicators than those used by conventional microfinance targeting tools. The tool employs principal component analysis to construct a multidimensional poverty index that allows the poverty outreach of MFIs to be compared within and across countries. Originally field tested in four countries on three continents, it has subsequently been applied by microfinance donors and MFI networks in numerous other countries. Although the Microfinance Poverty Assessment Tool was designed for microfinance, it can also be used to measure the poverty levels of clients of other development programs.