Research reveals best paths for success as microfinance sector grows

Feb 11, 2009

As the microfinance sector passes the 150 million customer mark, an intense debate continues over the movement toward greater commercialization of an arena once led by nonprofits. "Microfinance Meets the Market," just published in the Journal of Economic Perspectives, advances the debate, presenting new research from Jonathan Morduch of the Financial Access Initiative, housed at New York University's Wagner Graduate School of Public Service, and Robert Cull and Asli Demirgüç-Kunt of the World Bank. The research reveals complementary paths to a successful expansion of the microfinance industry.

"Arguing for a purely nonprofit or commercial approach to global microfinance services misses the point and limits the opportunities to reach a significantly broader population," commented Professor Morduch. "We shouldn't be choosing sides. By embracing both NGO and commercial options we can leverage innovation to drive down costs and expand access."

Roughly 40-to-80 percent of the populations in most developing economies lack access to formal banking services. There is general agreement that access to reliable financial services could improve the lives of hundreds of millions, perhaps billions, of low-income people currently without access to banks.

In examining 346 of the world's leading microfinance organizations covering 18 million borrowers, the research presented in "Microfinance Meets the Market" reveals that while commercialization is a powerful trend, commercial banks such as Mexico's Compartamos and avowedly "social businesses" like Grameen Bank are not substitutes for each other. Each has benefits and limitations.

Commercial microfinance banks, as a group, make loans that on average are about four times larger than loans from non-governmental organizations (NGOs). Since poorer customers generally demand smaller loans, average loan size is a rough proxy for the poverty level of customers. Microfinance banks tend to serve a substantially better-off group of borrowers than do NGOs, and banks also serve fewer women as a share of their customers.

While many NGOs do in fact earn profits from their microfinance activities, investors seeking only financial returns would have little interest in most of the institutions serving poorer customers. Commercial investment is necessary to fund the continued expansion of microfinance, but institutions with strong social missions, many taking advantage of subsidies, remain best placed to reach and serve the poorest customers and some are doing so at massive scale. The paper shows that social investors, foundations, and public agencies remain an important part of the microfinance equation.

More information: The full article is available online, here: financialaccess.org/sites/defa… e_Meets_Market_0.pdf

Source: New York University

Explore further: Rare early shakespeare compilation found in small French library

add to favorites email to friend print save as pdf

Related Stories

A health and fitness tracker for dogs

Nov 04, 2014

Have you ever wondered what your dog does all day? Could she be feeling sluggish and ill? Did the dog walker really take him out? Davide Rossi MBA '10 has launched a company to answer such questions not only ...

Recommended for you

James Watson's Nobel Prize to be auctioned

Nov 25, 2014

Missed the chance to bid on Francis Crick's Nobel Prize when it was auctioned off last year for $2.27 million? No worries, you'll have another chance to own a piece of science history on Dec. 4, when James D. Watson's 1962 ...

Engineers develop gift guide for parents

Nov 21, 2014

Faculty and staff in Purdue University's College of Engineering have come up with a holiday gift guide that can help engage children in engineering concepts.

Former Brown dean whose group won Nobel Prize dies

Nov 20, 2014

David Greer, a doctor who co-founded a group that won the 1985 Nobel Peace Prize for working to prevent nuclear war and who helped transform the medical school at Brown University, has died. He was 89.

User comments : 0

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.