Can an average loan size proxy can be maintained? This discussion paper argues very strongly that the average loan size proxy for depth of outreach being used by USAID is grossly inadequate.

It states that:

  • Current U.S. government legislation mandates that at least one-half of all USAID assistance for microenterprise development must be targeted to the poorest
  • To ensure compliance with the legislation USAID uses an average loan size of US$300 ($400 for Latin America and $1,000 for Eastern Europe and the Newly Independent States) as a proxy indicator to determine whether MFI clients are amongst the poorest

The paper finds that only better-off clients apply for larger loans (for $3,000 for example) while there is no corresponding evidence showing that only the very poor apply for small loans. States that there is enough empirical evidence to suggest that this indeed happens and additionally, the average loan size criteria focuses only on credit and fails to acknowledge the fundamental importance for the very poor of savings-based programs and non-financial services.