Commercialization of Microfinance: Perspectives From South and South East Asia

Drawing on the country experiences of Bangladesh, Indonesia, Philippines and Sri Lanka, this paper highlights the different perspectives on commercialization of microfinance and identifies issues and challenges relating to commercialization in the Asia-Pacific region.

Of the 180 million poor households in Asia and the Pacific 95% still do not have access to institutional financial services. The paper argues that commercialization can improve the outreach of microfinance institutions.

The paper seeks to explain critical issues relating to commercialization of microfinance:

• Degree of correlation between commercialization and outreach;
• Consonance between commercialization and the social mission of microfinance;
• Effect of commercialization on competition, and consolidation within the microfinance sector;
• Effect of commercialization in overcoming capital constraints.

The paper then presents approaches and factors which can help in the commercialization of this sector:

• Government support and encouragement to commercialization;
• Donor support to commercialization;
• Attracting commercial banks to microfinance.

Finally, the paper concludes that, once efficient and profitable microfinance models are identified, it is likely that commercial financial institutions will be attracted to serve poor and low-income segments of rural markets as well.