The Consultative Group to Assist the Poorest: A Microfinance Program

Microfinance is defined as the provision of credit, savings, and financial services to very poor people. Providing these services to very poor households creates opportunities for the poor to create, own, and accumulate assets and to smooth consumption. The field of microfinance was pioneered by specialized NGOs and commercial banks such as BRI-Unit Desa (Indonesia), Grameen Bank (Bangladesh), K-Rep (Kenya), and Prodem/BancoSol (Bolivia) among others. They have demonstrated that populations traditionally excluded by the formal financial sector can, in fact, be a market niche for innovative banking services that are commercially sustainable. Microfinance represents a significant departure from earlier exercises in providing credit to the poor through financial institutions (often public institutions) at subsidized rates with little or no recovery rates. Successful microfinance institutions are primarily local organizations that are reaching a significant number of poor people and are commercially viable.

Despite the growing number of microfinance institutions (MFIs), back-of-the envelope calculations indicate that they have penetrated less than 2 percent of the total market for microfinance services. The Consultative Group to Assist the Poorest (CGAP) is a multi-donor effort to broaden and deepen the success of the work done by pioneer institutions in this field. CGAP’s mission is to expand poor people’s access to high quality financial services from sustainable or potentially sustainable microfinance institutions.