Role of microfinance in reducing poverty and vulnerability

At its core poverty is about risk and vulnerability. The livelihoods of poor people are characterised by occasional demands for large amounts of money that they cannot cope with, which undermines their livelihoods.

These events may be foreseen – as in the case of weddings and funerals – or unforeseen, as in the case of disasters or emergencies. Either way, it is the risk of these events occurring, and the vulnerability to them that makes poverty so dynamic and unpredictable. Thus it’s common to hear about a destitute person who was living comfortably until a sudden illness or disaster occurs. Similarly, as people move out of poverty they remain vulnerable to falling back down. In microfinance we focus on providing appropriate services to different client groups. But do these services reflect the complexity and dynamics of poor peoples’ livelihoods?

The challenge is to work in a way that helps poor people overcome their vulnerability and establish secure livelihoods. To do this, we need to understand the pathway out of poverty, and  its implications in terms of designing interventions which address both the financial needs and developmental needs of poor people.

Microfinance can be a powerful tool to reduce poverty and vulnerability through the provision of financial services, savings, microinsurance or transfers. In addition, well-designed microfinance programmes can and should also promote and protect poor people’s livelihoods by reducing risk, strengthening financial livelihoods, empowering clients and providing a platform for broader development interventions around issues such as health and education which damage poor people’s livelihoods and increase their vulnerability.

Role of the Imp-Act Consortium

Achieving the social development objectives of microfinance goes beyond merely providing more services to more clients. Experience shows that the way services are provided is just as important: they need to respond to the real needs of clients and be appropriate to their capacities. Well-designed microfinance programmes that deliberately address clients’ needs have great potential to bring a wide range of benefits to poor and excluded people’s lives, and to do so in a sustainable way. Some microfinance institutions (MFIs) prioritise financial targets and don’t feel the need to prioritise social goals, assuming that they will follow automatically. But evidence from the field shows that this is not the case.

The Imp-Act Consortium unites 12 organisations at the forefront of the global SPM agenda. Our strength is the combination of practical experience and thought-leadership.

We influence practice through advocacy, training, and knowledge management. Our core competencies include all aspects of the social performance management agenda, from strategic planning to social rating.

More information about the work of the Consortium can be found on http://spmnetwork.net

SPM Resource Centre

The SPM Resource Centre is a comprehensive and dynamic source of practical guidance on all aspects of the SPM process.

Users can start their SPM journey by taking an SPM self-assessment quiz, which provides targeted guidance based on your answers.

The site also includes: 

  • Real case examples from MFIs worldwide
  • Tips and checklists for each technical area
  • Policy templates you can download and adapt for your own MFI
  • Downloadable worksheets to help you define your SPM approach
  • Targeted guidance on how to get started for key stakeholder groups, including: MFIs, networks and funders
  • Visit the SPM Resource Centre today!

Project details

start date
18 March 2005
end date
18 March 2012

About this project

Programmes and centres
Centre for Social Protection