Microfinance has proven to be an economical and effective mechanism for tackling global poverty. The Microcredit Summit of 1997  defined its objective as follows: “to reach 100 million of the world’s poorest families  , especially the women of these families, by providing them with credit to settle in their homes. account and other financial and commercial services by the year 2005 “. This is an ambitious goal, as the provision of microfinance services to the poorest families is a new concept and most microfinance institutions (MFIs) currently reach the poor, not the poorest.
This article focuses on the first step of this goal: identifying the poorest clients. This is a step that is usually bypassed or omitted in the eagerness to launch programs that can begin to distribute loans and achieve financial self-sufficiency. Our question is: how can microfinance benefit the poorest without a measurement tool? How to identify these families in the field and encourage their participation in microfinance programs? And how to measure the impact if we do not know what is the initial situation of the customers?
We believe that it is impossible to establish microfinance services for the poor without active targeting of poverty. Experience shows that including more affluent individuals may discourage the poorest from participating. Therefore, while our goal is not to reach only the poor, we may not achieve them unless we use active targeting.
It is not a question of cost or viability (although this has a significant impact on how poverty is targeted). Whether a program is targeted exclusively or not, experience shows that reaching the poor requires a program specifically designed to meet their needs. Poverty targeting can help this process by raising awareness of the different needs of different types of customers and by effectively targeting different products.
Many postulate that it is impossible, or too expensive, to design reliable poverty targeting instruments. However, several methods of identifying a cost-effective method are used. This article describes two methods of targeting poverty that effectively identify the very poor and have been made operational and used extensively with thousands of potential clients. Other less familiar approaches are also briefly discussed.
The CASHPOR Housing Index (CHI) uses external housing conditions as an indirect measure of poverty and can be very effective when there is a homogeneous relationship between poverty and housing conditions. Participatory Wealth Ranking (PWR) uses a community’s own definitions and perceptions of poverty; it uses rigorous cross-checking methods to ensure consistency and accuracy of results. Both methods rely on the information available, collect the minimum amount of data needed for reliable targeting, and supplement targeting with a motivational process to encourage the very poor to participate in the program.
Both methods are specific to each situation. The PWR is based on a community’s in-depth knowledge of its members and is unlikely to be effective in situations where the community is unified or if there is a climate of conflict and mistrust. Likewise, the CHI assumes that there is a strong correlation between housing conditions and poverty. It is not a universal relationship, it depends strongly on the context. When CHI is adapted to local conditions, including other non-housing related indicators that are externally visible, the Index is more likely to be applicable to a wider range of situations.
A third tool we call the “checklist” method is to establish a list of measures or indicators of poverty based on the understanding of poverty at the local level. Points are then allocated to each indicator and poverty lines are determined. The poverty line of a household can then be calculated from its total score or the number of eligibility indicators.
These methods should not be used indiscriminately but adapted to local conditions and needs. Several choices must be made to determine which tools to use.