Accurate targeting is key for the success of any development policy. While a number of factors might explain low targeting efficiency such as governance failure, political interference or lack of political will, this paper focuses on improving indicator-based models that identify poor households and smallholder farmers more accurately. Using stepwise regressions along with out-of-sample validation tests and receiver
operating characteristic curves, this paper develops proxy means tests models for rural and urban Malawi. The models developed have proved their validity in an independent sample and therefore, can be used to target a wide range of development policies at the poor. This makes the models a potentially interesting policy tool for the country.