Paper
Maximizing the Outreach of Microenterprise Finance: The Emerging Lessons of Successful Programs
Performance of microenterprise finance programs on the basis of outreach and sustainability
4 pages
This paper states that financing microenterprises using subsidized and directed credit has not been viable. The approach has the following weaknesses:
- Lending institutions are not financially self-sufficient and usually become de-capitalized quickly;
- Funds do not reach the intended target group;
- Programs distort financial markets; this inhibits the efficient evolution of microfinance.
Further, the paper analyzes the performance of "frontier" microenterprise finance programs from two perspectives: outreach and financial sustainability. Key findings of the study include:
- Scale, and not exclusive focus, determines substantial outreach to the poorest;
- Key to rapid growth is the ability to maintain financial viability by:
- Controlling bad loans;
- Holding administrative costs at manageable levels;
- Developing a rapidly growing base of financial resources.
- Service quality should be tailored to the situation of micro-entrepreneurs.
The paper concludes with recommendations to donor agencies that are looking at funding such programs:
- Exhibiting management commitment to achieve financial viability within a reasonable period with concrete targets and credible plans;
- Promoting the use of standard accounting practices, including transparent treatment of subsidy and portfolio quality (delinquency);
- Exercising caution in promoting savings mobilization to ensure financial capability of institutions to manage clients' resources prudently.
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