Balancing Supply and Demand: The Emerging Agenda for Microfinance Institutions
by Thankom Arun and David Hulme

A Challenge to the Orthodoxy Concerning Microfinance and Poverty Reduction
by Ana Marr

As a response to many partial and simplistic theoretical and empirical studies, this paper presents a more comprehensive analytical framework to assess the success of microfinance in achieving its dual objectives of financial sustainability and poverty reduction. By giving center stage to the study of group dynamics and using principles of imperfect information and social psychology, the paper argues that microfinance not only has failed to solve the original problems of information asymmetries between borrowers and lenders but also, in its pursuit of financial sustainability, is destroying the very foundations of these schemes by disrupting the social fabric of communities, creating more poverty, and excluding the poorest and most vulnerable from any given group.

Money Talks: Conversations with Poor Households in Bangladesh about Managing Money
by Stuart Rutherford

This paper describes the money management behavior of 42 lowincome Bangladeshi households, half of them rural and half living in urban slums. They were found to be active managers of their financial resources. Thirty-three varieties of financial instrument were found to be in use by the sample households during the research year. As well as using a wide variety of instruments, most households engaged in multiple uses of the instruments: on average each household initiated a new money management arrangement every two weeks. The sums of money involved are large, both absolutely and relative to incomes. The average “turnover” (the total transaction flows of money through financial instruments) per household was $ 8 3 91 in the year—a sum equal to about three-fifths of their annual income. The total value of the microfinance market for poor people in Bangladesh probably exceeds $10 billion. Households appear to be using financial instruments of all kinds to build lump sums of money for immediate expenditure rather than to build up long-term, large financial assets or to hold highvalue, long-term debt. These sums were overwhelmingly formed in the informal sector. The role of the MFIs is thus somewhat contradictory. Their outreach into these households is excellent but their share of the total money management activities of the households is small. The paper concludes that both MFIs and poor households would benefit if MFIs achieved a better understanding of current and potential demand for financial services by the poor and tailored products and delivery systems accordingly.

Rural Finance, Poverty Alleviation, and Sustainable Land Use: The Role of Credit for the Adoption of Agroforestry Systems in Occidental Honduras
by Ruerd Ruben and Luud Clercx

This paper analyzes the relationship between financial services provided by different agents, the adoption of agroforestry systems, and the implications for food security and sustainable soil management. Attention is focussed on the role of rural finance in reducing risk and stabilizing household income and yields. We conclude that credit provision performs critical functions for reinforcing the resilience of rural livelihoods in lessfavored areas. Rural development programs in the Occidental region of Honduras have been rather reluctant to provide rural financial services. Unfavorable agroclimatic conditions and the scarcity of infrastructure lead to extreme poverty. The local economy is fairly dynamic due to the availability of nonfarm income sources and crossborder trade. Within the framework of the FAO Lempira-Sur program, provision of rural credit and savings services created the conditions for adopting the Quezungual agroforestry system. This innovation contributes to higher and more stable cereal yields and reduced labor demands in agriculture. Access to rural finance thus reinforces food security and enables income diversification as a precondition for subsequent in-depth investments.

Implications of Financial Innovations for the Poorest of the Poor in the Rural Area: Experience from Northern Bangladesh
by Mohammed Emrul Hasan

Providing microfinance to the poorest of the poor in rural areas remains a challenge. Grameen demonstrated that the poor are viable clients for loans and reached them on a massive scale. However, they reach only the upper level of the poor and provide narrow and limited financial services with rigid systems and procedures, which in many ways do not address the needs of the poorest. Despite earning signs of success with their SafeSave innovative approach to serving the poorest in the urban area, this rural adaptation and experiment has faced challenges because of the different social and economical structures of the rural economy and the different pattern of poverty dynamics in the rural area. Some of the recent experiments following S a f e S a v e in the rural areas of northern Bangladesh show that understanding rural poverty, financial products, and mechanisms; identifying the poorest and their needs; and most importantly, educating clients and motivating providers and promoters are the keys to success in providing microfinance to the poorest of the rural poor.

Attitudes of Rural Branch Managers in Madhya Pradesh, India, toward Their Role as Providers of Financial Services to the Poor
by Howard Jones, Marylin Williams, Yashwant Thorat, and Abha Thorat

Discussions on banking reforms to reduce financial exclusion have referred little to possible attitudinal constraints, on the part of staff at both branch and institutional levels, inhibiting the provision of financial services to the poor. The research project, funded by the ESCOR (now Social Science Research) Small Grants Committee, has focused on this aspect of financial exclusion. The research commenced in May 2001 and was completed in April 2002. Profiles of the rural bank branch managers, including personal background, professional background and workplace, are presented. Attitudes of managers toward aspects of their work environment and the rural poor are examined, using results from both quantitative and qualitative analysis. Finally, the emerging policy implications are discussed. These include bank reforms to address human resource management, the work environment, intermediate bank management and organization, and the client interface.

Book Review
Beyond Micro-Credit: Putting Development Back into Micro-Finance by Thomas Fisher and M. S. Sriram
by James R. Bradshaw