A poverty outreach index and its application to microfinance

The Foster, Greer, and Thorbecke poverty index is modified to create a poverty outreach measure that incorporates both depth of outreach and scale. In an application to microfinance institutions, the use of this type of poverty outreach measure rejects the common notion that there is a necessary trade−off between client outreach and institutional sustainability. Banks and credit unions are found to have greater poverty outreach than smaller, subsidized non−governmental organizations that exclusively target the poor. Initial research was supported by the World Bank. However, the opinions and conclusions drawn are the author’s alone and cannot be attributed to the World Bank or its affiliated organizations. Helpful comments were provided by Harold Winter, the rural finance department at The Ohio State University, and an anonymous referee. Research assistance was provided by Carlos Garcia. Citation: Paxton, Julia, (2003) "A poverty outreach index and its application to microfinance." Economics Bulletin, Vol. 9, No. 2 pp. 1−10 Submitted: April 9, 2003. Accepted: April 29, 2003. URL: http://www.economicsbulletin.com/2003/volume9/EB−03I30002A.pdf