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Integrating the poorest into microfinance: The role of grant-based support and group-based lending

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Realizing that the poorest do not benefit from conventional microfinance, BRAC has designed a comprehensive livelihood-support programme that involves asset transfers on a grant basis followed by microfinance with some flexibility, such as formation of lending groups (village organizations) with socially homogeneous members. BRAC offers microfinance after two years of grants. Using propensity score matching and three rounds of survey data, we analysed how the asset-transfer programme and socially homogeneous lending group helped the extreme poor participate more effectively in microfinance. The paper also investigates whether microfinance participation brought any changes in livelihoods. We found that the grant-based approach had positive impacts on microfinance participation of the ultra-poor households. We also found that formation of a socially homogeneous lending group helped the members more actively participate in microfinance. Impact assessment of microfinance participation showed that productive asset holding and per capita income were positively affected.
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Document Type: Research Article

Publication date: 2012-06-01

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