Development of a successful microfinancing system

In the transition process from financial repression to a prudentially deregulated financial system, an increasing number of developing countries are becoming concerned about access of the rural and urban masses to microfinance. Only viable institutions with sound practices, which mobilize their own resources and cover their costs from the margin, can respond to the increasing demand for microsavings, microcredit and microinsurance services on a sustainable basis. Three major approaches contribute to the development of a system of microfinance: reform of the policy environment; institutional transformation; and instrumental innovation. In this framework there is a wide variety of institutions that have to undergo major adjustments to play their role effectively as financial intermediaries for the microeconomy: commercial and development banks; formal local banks and semiformal financial institutions under private, cooperative, community or local government ownership; credit NGOs; and informal financial institutions. Contingent upon the policy environment, the institutional infrastructure, and the degree of market integration, there are four major strategies of institutional transformation: institutional adaptation, or downgrading, of formal financial institutions; institutional enhancement, or upgrading, of nonformal financial institutions; linking formal and nonformal financial institutions; and, in the absence of a sufficient number of adaptable formal and nonformal institutions, infrastructural innovation: establishing new microfinance institutions. In each case, sound financial practices appropriate to the institution and its market are essential. There is no single best approach that can be simply replicated without regard to the unique situation of a country or region.

2004

The paper is a follow-up to an article published in Technique Financière et Developpement in 2000 (see the appendix to the hardcopy version), which portrayed the first results of a new strategy in the field of development finance implemented in South-East Europe. This strategy consists in creating microfinance banks as greenfield investments, that is, of building up new banks which specialise in providing credit and other financial services to micro and small enterprises, instead of transforming existing credit-granting NGOs into formal banks, which had been the dominant approach in the 1990s. The present paper shows that this strategy has, in the course of the last five years, led to the emergence of a network of microfinance banks operating in several parts of the world. After discussing why financial sector development is a crucial determinant of general social and economic development and contrasting the new strategy to former approaches in the area of development finance, the paper provides information about the shareholder composition and the investment portfolio of what is at present the world's largest and most successful network of microfinance banks. This network is a good example of a well-functioning "private public partnership". The paper then provides performance figures and discusses why the creation of such a network seems to be a particularly promising approach to the creation of financially self-sustaining financial institutions with a clear developmental objective.

2004

The paper is a follow-up to an article published in Technique Financière et Developpement in 2000 (see the appendix to the hardcopy version), which portrayed the first results of a new strategy in the field of development finance implemented in South-East Europe. This strategy consists in creating microfinance banks as greenfield investments, that is, of building up new banks which specialise in providing credit and other financial services to micro and small enterprises, instead of transforming existing credit-granting NGOs into formal banks, which had been the dominant approach in the 1990s. The present paper shows that this strategy has, in the course of the last five years, led to the emergence of a network of microfinance banks operating in several parts of the world. After discussing why financial sector development is a crucial determinant of general social and economic development and contrasting the new strategy to former approaches in the area of development finance, the paper provides information about the shareholder composition and the investment portfolio of what is at present the world's largest and most successful network of microfinance banks. This network is a good example of a well-functioning "private public partnership". The paper then provides performance figures and discusses why the creation of such a network seems to be a particularly promising approach to the creation of financially self-sustaining financial institutions with a clear developmental objective.

2014

Inspired by the success of microfinance programs in developing countries, Governments have worked to replicate them also in industrialized economies. Despite the growth of the sector, microfinance's academic research in developed countries is still very limited. The paper builds on the work of Prior and Argandoña (2009) which discusses four technical problems related to the diffusion of microfinance in developing countries. In re-framing their approach to apply it to developed countries we propose a set of recommendations in order to foster the growth of the microfinance sector: 1) the use of financial institutions to supply microfinance products; 2) the development of an alternative credit scoring in banks; 3) the adoption of a regulatory framework for microfinance; 4) the use of networks as social collaterals. The paper ends up suggesting future research trends grounding on our analysis of the industry.

Cosmopolitan Civil Societies: An Interdisciplinary Journal, 2012

Microfinance has been one of the fastest growing “industries” of the new millennium, with the sector now containing over 10,000 microfinance institutions (MFIs) worth an estimated USD with over $60 billion in assets (Microfinance Information Exchange 2011). This expansion has stimulated interest from both scholars and the mainstream media. There is a growing volume of academic research which broadly centres on two approaches: an “institutionalist perspective” that highlights microfinance as an innovation in applying market solutions to social problems; and the other approach, often described as welfarist, that questions the capacity of an increasingly commericalised sector to realize a mission of poverty reduction. But do these themes and concerns permeate academic boundaries? Specifically, does media coverage in key donor and recipient countries confirm or challenge or even engage with these debates? To date much of this academic literature has overlooked how “microfinance” has bee...

The purpose of the paper: The paper aims to analyze the impact that digitization has in the development of rural microfinance. We want to underline that the rural micro financing comprise to provide a range of financial services such as savings, credit, payments and insurance for individuals, households and businesses (both agricultural and non-agricultural) in rural areas. On this topic, I have a previous research like \"Microfinance, active factor in the social and financial inclusion\" which deals whit the fact that we are in the midst of the biggest revolution in information and communication in history. I also mention my paper about \"The role of microfinance in sustainable rural development\" where I say, among others, that the social inclusion and financial progress are the results of digitization trend of the financial sector with a major impact on financial and non-banking institutions. Creating new distribution models (networks of external agents, banks without branch network), the emergence of new opportunities for customer access and management of back-office are just some of the challenges that microfinance sector has passed through on a continue process of innovation and adaptation and last, but least, I mention another personal work, Financing instruments in eradicating poverty, where I discuss about the agricultural cooperative like an autonomous association with an unlimited number of members with variable capital, which operate economic, technical and social n the private interests of its members. The present work, like the previous ones, have both, the theoretical and practical component, by presenting examples of best practice. They also are based on personal experience gained in over 10 years of activity in the field of rural areas development. Key results: The main findings and recommendations are summarized as follows: the stage of development and the complexity of microfinance as globally action decisively influence the variables of financial management, the terms of their specific problems and the nature of our solutions;each type of space defines the microfinance need targeted on specific financial situation of the one in need of microfinance, prompting the objectives, issues and means of action. Value: Microfinance is estimated that, depending on the complexity of the activities funded, must achieve optimal combination of funding sources and presented their destination, having as a final objective the socio-economic development of small business. More orientation microfinance in Romania think should be in agreement with the 4Ps of Agenda 2030 \"People; Planet; Prosperity; Peace?.

2014

The paper studies the ‘wholesale ’ market through which microfinance institutions operating in three contexts (Peru, Tanzania and the state of Tamil Nadu in India) obtain loans from a variety of domestic and international funding bodies. The nature and characteristics of the relationships between them are captured through network analysis and visualization tools, with a dataset comprising inter-organisational lending re-lationships and organisations ’ attributes over the years 2006-8. Focus is on the extent to which patterns in wholesale lending relationships relate to the legal status and characteristics of microfinance institutions; to the regulatory, business and social environment in which they operate; and to shifts in the balance between social and commercial interests of diverse types of lenders. The analysis brings to light considerable cross-country variation in the structure and features of whole-sale lending relationships, and relates it primarily to differences in govern...

European Journal of Service Management, 2018

In the EU terminology, microfinance is defined as a tool to provide impoverished people with a basic access to financial services in the form of loans, savings, money transfers and microinsurance. From the economic point of view, the idea of microfinance should not be any substantial problems with sourcing the capital to support the poorest people who are excluded from the society. If the capital market were ideally flexible, the poorest people should not suffer from lack of capital. The factor that contributes to the fact that capital is not invested in the poorest regions of the world is also the substantially higher cost related to investments made by the poor and unequal access to information (information asymmetry), which leads to negative selection, moral hazard and difficulties with monitoring. In many EU countries, microfinance institutions have been functioning successfully, while the number as well as the value of granted microloans has been rising. Summing up the deliberations regarding the idea and operation scopes of microfinance institutions, it may be said that they are gaining importance not only on the financial market, but first and foremost in social and economic development of many countries and regions, in the developing countries as well as in Europe and in Poland. To enable further growth of microfinance, in view of the achievements made so far by the sector, it is possible to propose scenarios and directions of development with regard to the source of the loan capital. The solution appears to consist of the three scenarios of microfinance institutions development: commercial scenario, social scenario, mixed scenario. The scenarios may neglect some aspects of their operations. Still, they indicate the directions which microfinance institutions may follow and point to those that are the most desirable from both social and economic point of view, also taking into account the local development aspect.

2016

The concept of microfinance in Europe occurred in the 1800s when they developed several microfinance institutions in rural and poor urban areas. Microfinance represents that type of funding directed towards the real needs of the customer with the ultimate aim needs its (well-being) and not profit microfinance institution (credit cooperatives, NGOs, NBFIs, credit unions, popular banks, etc.). In the current context of sustainable development, microfinance is an active tool in fighting poverty worldwide top as the financing instrument closest to meeting the needs of the poor. Currently result of the numerous challenges facing them, we are witnessing a new assignment of the concept of microfinance from structure products of microfinance, continuing with mode planning(distribution), it's for those in need (micro-finance digitization of M-Pesa system as),promote and how innovative users of information and not least microfinance cost (price). However compose 4Ps of marketing mix micro...

Geoforum, 51: 27-36., 2014

Although microfinance is often thought of as a tool to address poverty in developing countries, it is also being introduced in a number of countries in the developed world. The paper presents a qualitative study of the first year of the introduction of microfinance to address vulnerable groups in Sweden. Savings banks and nonprofit organisations collaborated in the introduction of microfinance as microcredit for micro-enterprise. The paper argues that the rationalities behind actors’ participation in microfinance differed, with banks adopting a market rationality and nonprofits mainly a rationality of community empowerment. In line with a governmentality approach, the paper argues that the neoliberal market rationality dominating microcredit for micro-enterprise colonises the space of the communitarian aspect by turning the social into the personal. The paper’s qualitative approach complements a governmentality analysis by highlighting the everyday resistance to the neoliberal financialisation of inclusion efforts.