Appraising the Poverty Outreach of Microfinance: A Review of the CGAP Poverty Assessment Tool (PAT)

Assessment of the poverty level of microfinance clients is important for both practitioners and donors. For practitioners, increased understanding of the target market and whether it is being reached can help in the design of financial services better suited to the needs of different groups of clients. For donors seeking to ensure the most effective use of their scarce resources for combating poverty, poverty assessment is used to assist in making decisions on resource allocation. While there is much evidence that microfinance can be a critical input towards the achievement of the Millennium Development Goals and the reduction of poverty (Littlefield et al. 2003), the impacts of microfinance are not automatic. To achieve significant directs impacts on poverty it is essential that Microfinance Organisations (MFOs) reach poor and very poor clients, and therefore measurement of poverty outreach becomes an important proxy indicator for the success of microfinance in achieving impacts on poverty. This paper is aimed at donors, policymakers and practitioners interested in the mechanisms by which the poverty level of microfinance clients can be assessed. It is primarily a review of the CGAP Poverty Assessment Tool (PAT), and highlights the potential applications for the tool, issues to consider in its use, and possible further steps in the development of the tool. It goes on to consider the broader issue of poverty assessment in microfinance, and proposes an important additional use for the PAT in validating and improving the credibility of low-cost practitioner assessment and monitoring tools.