The upper/middle bias in loans and credit
Proponents say that the provision of credit is required to generate economic growth among the Poor. However, opponents claim that even though the primary process by which financial services are envisaged as reducing poverty through the provision of income-generating loans, assessing income changes is not an easy task. The starting point is to see the degree to which the Poor can access the loans. Some studies found that income-generating credit is not "scale neutral", but has different utilities and effects for different groups of poor people. This is an important finding as it indicates that: (i) credit schemes are most likely to benefit the incomes of the "middle" and "upper poor, (ii) the poorest receive few direct benefits from income-generating credit initiatives, (iii) institutions seeking to provide income-generating credit to the Poor, while pursuing their own financial viability, will have a tendency to concentrate on the "upper" and "middle" poor.

Hulme and Mosley (1996) confirm that even though there is emerging consensus that well-designed credit schemes can raise the incomes of significant numbers of poor people, it raises another question of whether the poorest can benefit from the credit scheme or is it only a way to bleed cash from the rural poor. There are trade-offs between the goals of poverty alleviation and institutional performance, and credit has different impacts on different groups within "the Poor".

Savings: an alternative
Throughout the world and across many cultures and income groups, people save for various purposes, including emergencies, investment, consumption, social obligations, education of children, pilgrimage, sickness, disability and retirement. Extensive household savings have been reported in developing countries around the world for at least three decades. A United Nations study showed that household savings made up one-half to two-thirds of total savings in seven Asian countries (UN, 2005). During the 1970's and 1980's, substantial household savings were reported in rural areas of developing countries worldwide. Rural savings of various kinds were widely documented from many areas of Asia, Africa and Latin America (Robinson, 2005).

For an increasing number of poor people, micro enterprises are a source of income and employment when no other alternatives are available. In rural settings, most families combine micro-enterprise activity with farming, and many depend on it as the main source of family income. Nowadays, it is common to see and it is starting to receive recognition that savings services are found to be as important as credit allocation in meeting the financial needs of poor entrepreneurs.

Saving is an essential and widely used component of finances of poor households. When there is no institution available, poor people tend to save in other than monetary forms, such as in small livestock or jewellery. However, if they can determine that their assets are securely held, will maintain value, are relatively liquid, and are in a convenient location, poor people prefer to save in monetary form, as some of the most successful programmes have demonstrated (Sharma, 2001). Because saving is part of the liquidity strategy of most households, it is likely that more people will demand more saving services than credit. This position discards the previous belief that the Poor do not save or do not demand saving services. It is based on the experience of programmes such as Bank Rakyat Indonesia (BRI), which in the last few years has demonstrated that properly designed saving instruments can elicit overwhelming demand among the poor (Robinson, 2005).

On "Creating Opportunities for the Poor through Innovation", Pakpahan et al. (2005) refer that microfinance is not only needed by the Poor but is also profitable. Low-income rural people make good and profitable financial clients for such monetary transfusion. However, the present situation shows that the fraction of the Poor served by microfinance is still low. As a consequence, more and better understanding of communities which each bank deals with is called for. One of the most critical areas is that the poor communities across regions are not homogenous. Therefore understanding variations of demand for microfinance is crucial.

Written by Erna M. Lokollo, Senior Agricultural Economist of ICASEPS/Programme Leader of R&D UNESCAP-CAPSA, Bogor, Indonesia.

(References available upon request)