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It's time to rethink how we view microfinance institutions

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15th-Nov-2017       
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Aaron Baum  :
The core competency of microfinance institutions isn't finance - it's distribution. Their central infrastructure isn't bank branches, but rather networked group meetings. And the return on investment from their loans isn't the interest; it's the added value of organizing vulnerable populations in rural areas of low-income countries into a platform.
MFIs aren't banks that happen to lend to groups; they are a delivery platform reaching 200 million households globally that happens to distribute loans.
The traditional microfinance model provides loans to self-formed groups of entrepreneurs who are organized into credit centers that meet regularly in remote villages.
The centers are serviced by traveling credit agents who are stationed at a bank branch, which functions as a regional hub and offers storage space with electricity and internet.
One microfinance borrower per credit center is elected as the group's leader. This volunteer cadre forms the operational backbone of the organization, providing the last mile bridge from the formal institutions to the informal institutions and markets that govern life in remote communities.
Even though evaluations of the impact of microloans on poverty reduction are mixed, rigorous studies, including randomized trials, suggest that these credit center meetings promote social capital and reduce loan defaults.
Can this organized network distribute other services, beyond loans, that have a stronger evidence-base? Research we conducted at the Arnhold Institute for Global Health in collaboration with Fonkoze, the largest MFI in Haiti, suggests they can, and do.
Let's look at the example of micronutrient supplements - which effectively fight malnutrition, a condition that is responsible for over 1 million deaths per year. Micronutrient supplements have the highest benefit-to-cost ratio of any development intervention across all sectors (based on an analysis from the Copenhagen Consensus).
We also know that the reciprocal relationship between poor health and poverty - that illness increases the likelihood of poverty, and poverty increases the risk of illness - argues for integrating health and anti-poverty initiatives. Can we leverage MFI networks to extend health services?
Evidence from a randomized trial set in Haiti suggests we can.
Published this week in the leading health policy journal, Health Affairs, the study tested whether training microfinance center chiefs to deliver micronutrient supplements (specifically, micronutrient powders containing 15 essential vitamins and minerals) during credit center meetings improved nutrition among children under five.
Comparing changes to blood test results and rates of anemia among 500 children in treatment and control villages, we found that MFI-delivery worked. Moreover, the estimated health impact was equal to a previous trial, also conducted in Haiti, where the same intervention was delivered through a nonprofit health and nutrition program.
The microfinance-health initiative is now being scaled nationally in Haiti through a social business model.
What are the implications of our findings for the development community? We know that delivering interventions via well-connected peers may improve their spread and targeting.
Policymakers seeking to rapidly scale lay health worker programs should consider incorporating training of MFI center chiefs into their deployment strategy.
The network of socially central, local, female leaders offers a readily accessible bridge from formal institutions, such as health systems, to informal markets in remote communities.
Supply chains to reach thousands of rural villages are already established and maintained by MFIs, reducing the need for duplicative, large upfront investments in delivery infrastructure for suppliers. Moreover, microfinance borrowers who are already attending credit meetings do not have to spend any more time or pay additional travel costs to access essential health products.
By increasing coverage of existing health interventions, two-thirds of child deaths could be prevented. That alone is reason to unlock the potential of alternative means of distribution, and we think using MFI networks to deliver life-saving products offers a promising approach to reach scale.
(Aaron Baum, Ph.D., is a lead economist at the Arnhold Institute for Global Health and an assistant professor in the Department of Health System Design and Global Health at the Icahn School of Medicine).

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