Developing Sustainable Microfinance Systems

This paper discusses the status of microfinance (MF) in the Asia and the Pacific region, and provides an overview of the MF activities supported by the Asian Development Bank (ADB).

The paper argues that on the supply side, there is a need to increase the reach of MF services to the poor through domestic resource mobilization, while on the demand side, there is a need for social intervention to enable the poor to optimally utilize MF services.

The paper observes that:

• In the last two decades, MF has increased its outreach from thousands to millions;
• However, it does face challenges such as:
  • governmental interference,
  • inadequate financial, legal, supervisory and regulatory infrastructure,
  • inadequate emphasis on financial viability,
  • inadequate investment in rural development and social intermediation;
• To maximize developmental impact, MF services have to be integrated with other critical measures aimed at reducing poverty;
• Adoption of the financial system development is the key to achieving sustainability.

As per the author, to create a sustainable MF system it is necessary to:

• Create a conducive policy environment;
• Develop critical financial, legal, supervisory and regulatory infrastructure;
• Develop viable microfinance institutions;
• Encourage pro-poor innovations in financial technology;
• Focus on social intermediation.

The paper concludes by stating that these measures would ensure the sustainability of MF services, and provides a detailed case study of the ADB and its success in implementing these measures.