Do Microfinance Programmes Really Serve the Poor? Evidence from Rural Southeast Nepal

Abstract

During the past 25 years development organisations worldwide have increasingly relied on microfinance programmes to help alleviate poverty and achieve various development objectives. These programmes typically aim to provide financial services to poor households that otherwise cannot access formal financial markets. One such example programme is the Grameen Bikas Bank (GBB) in rural southeast Nepal. While GBB targets poor households, the evidence reveals that the vast majority of GBB clients are relatively wealthy, as measured by land ownership and other socioeconomic indicators. In addition, GBB’s poor clients also feel less satisfied with its services than do wealthy clients, suggesting that GBB has not adequately tailored its products to the needs of the poor. Possible reasons for GBB’s shortcomings include Nepal’s caste system, rigid loan repayment schedules, and below-market interest rates on loans. Remedies to improve GBB’s outreach to the poor include flexible repayment schedules, higher interest rates, and increased staffing to recruit poor households and monitor their loans.