Microfinance: Where Do We Stand?

This paper examines recent innovations and trends in microfinance and identifies areas where the support of international donors and local government can help. It states that the future of MFIs is ultimately in the hands of international donor agencies and local governments, who promote competition and financial self-sustainability as a way to maximize outreach.

The paper explains how the innovative group lending technique gained donors’ attention. It finds that the increase in the number microfinance institutions was facilitated by innovations such as:

• Use of progressive lending;
• Flexible treatment of collateral;
• Focus on women as customers;
• Promotion of clients’ savings.

Finally, the paper concludes by spelling out three main areas that can benefit from the support of international donors and local governments. These are:

• Creation of credit bureaus that limit the possibility of borrowers getting weighed down by debt and jumping from one microlender to another;
• Establishment of a sound regulatory system;
• Delivery of services that are complementary to finance, such as health and education services.