Microfinance Means Financial Services for the Poor
This paper investigates the effectiveness of microfinance as an instrument for poverty reduction, helping poor people to increase incomes, build assets, and reduce their vulnerability in times of economic stress. This brief summarizes the vision and strategy of CGAP's 29 member donors to bring microfinance to the scale required to serve millions worldwide.
The authors argue that large-scale sustainable microfinance can be achieved only if financial services for the poor are integrated into the overall financial systems of developing countries.
Further, the paper explores the options that need to be exercised for microfinance to reach its full potential:
- Diverse institutions and delivery mechanisms;
- Diverse and flexible financial services;
- Improved availability of high-quality, reliable information on the financial and social performance of microfinance institutions;
- Sound policy and legal framework that encourages a diversity of institutions and financial products to serve the poor.
Finally, the paper suggests donor role in supporting a new vision of financial services for the poor:
- Embed microfinance conceptually and organizationally within financial sector development;
- Clarify the role of subsidies to support microfinance;
- Support innovation;
- Make efforts towards encouraging institutions that develop savings-based products;
- Introduce flexible funding instruments to support research and development, capacity building, and initial operational subsidies;
- Intensify collaboration and cooperation in order to combine expertise and funding instruments to promote a wide range of financial services for the poor.
