"Poverty lending" and microenterprise development : a clarification of the issues

Its purpose is to clarify rather than resolve poverty lending issues. In this light it explores two approaches to microenterprise development: (1) poverty lending -- lending to the poorest of the poor; and (2) the financial systems approach -- meeting the financial needs of the poor through development of viable financial institutions and through the incorporation of microenterprise lending into the wider context of an improved financial system. The following topics are addressed: (1) characteristics of the two approaches; (2) experiences with poverty lending (the Grameen Bank) and the financial systems approach (Baden Kredit Kecamatan, aka BKK); (3) characteristics of successful poverty lending and financial systems development approaches; and (4) operational and policy issues in poverty lending programs. The paper concludes by considering whether poverty lending can be compatible with financial sustainability. (Author abstract, modified)