A Microfinance Revolution
This paper discusses various features of the microfinance revolution.
The paper states that microfinance has been successful beyond expectation. The idea behind microfinance is that poor households that gain access to financial services can take charge of their own economic development. Over the years:
- Microfinance helped build recognition for the importance of savings to poor people;
- NGOs began to offer financial services to their clients;
- Commercial banks discovered the poor as a new target segment, and developed products and services especially for them;
- Greenfield approach set up microbanks that specialized in microcustomers;
- Various kinds of MFIs emerged, from village funds with a few hundred customers to large MFIs with a national branch network.
The microfinance movement has experimented with innovative methods for managing the cost and risk problems of microcustomer business. Flexible and non-bureaucratic processing has reduced costs, while alternative securities such as group guarantees have taken care of risks. Finally, microfinance has led to a paradigm shift for development cooperation in the financial sector. From providing farmers or small businesses with cheap money through development banks, the development paradigm has shifted to building sustainable financial institutions.
