Microfinance as a Strategy for Poverty Reduction: A Comparative Analysis of ACSI and Wisdom Microfinance Institution in Ethiopia

Microfinance has been widely accepted as a viable policy option for poverty reduction by the donor community, international organizations, governments and nongovernmental organizations. In order to investigate this underlying premise, this study examined empirical evidence in Ethiopia to check if microfinance is a good poverty reduction strategy. For this purpose, the two cases (ACSI and Wisdom) were analyzed based on Design, outreach, financial performance, sustainability and impact framework. The study found that Microfinance is indeed a strategy for poverty reduction in Ethiopia. However, the contribution of cases depends on their approach. ACSI is efficient, profitable, and sustainable MFI and best reflects the business approach. However, it is less effective in achieving its development mission and reaching the poorest clients in the region. Although Wisdom is financially less efficient, productive and sustainable, its strong link with WVE helps to work relatively better in its development objectives. The review of the impact studies shows that both cases have positive impact on their clients, especially on income diversification, health and nutrition, housing and empowerment of the poor. However, the evidence at country level shows that there has not been any significant decline in the overall levels of poverty. This could be partially due to the fact that the microfinance programs have not been very successful in including the poorest. Thus, microfinance is better used as an instrument along with other development interventions rather than a poverty reduction strategy in isolation. Microfinance alone can not defeat poverty. It should be integrated with other development interventions and in this integrated intervention, government and donor agencies could play a great role.