Banking at the Base of the Pyramid: A Microfinance Primer for Commercial Banks

This primer provides a concise summary of the issues and options facing bankers while designing and implementing microfinance programs. The paper argues that:

• Commercial banks have the potential to service the microfinance market profitably;
• Over the past decade, many banks have entered into this area and experienced growth.

The authors discuss:

• The need for a primer;
• Microfinance, defining it as financial services for the poor;
• The many categories of microfinance clients;
• The way in which client characteristics shape microfinance, leading to qualities like speed of service, simplified paperwork, acceptance of non-traditional collateral and specialized loan appraisal techniques;
• The suppliers of microfinance, stressing the increasing presence of private and public banks;
• Internal and external factors responsible for driving banks to enter the microfinance market;
• The importance of each driver and its implications, for example:
  • If profit is the primary motive, are the financial targets for achieving profitability realistic and achievable?
  • If social responsibility is the primary motive, will microfinance remain a marginal business struggling for finance and support?

The primer lists the following core principles of microfinance:

• Organization;
• Human resources;
• Products;
• Operations.

The paper states that a bank's design and implementation of its microfinance operations must be structured around these principles. The paper concludes by discussing how a bank can achieve profitability in the field of microfinance.