Understanding and Assessing the Demand for Microfinance

This paper evaluates the existing microfinance services available globally vis-a-vis the actual demand for these services.

As per the paper, the poor require credit at various stages of their lifecycle, whereas most microfinance programs currently focus on providing credit for enterprise. Microfinance institutions (MFIs) need to:

• Design a wider gamut of products to cater to the specific needs at each life cycle stage;
• Offer greater flexibility in repayment schedules.

The paper assesses the effectiveness of the existing microfinance programs across the globe on the broadly accepted and measurable indicators of poverty reduction that are focused on poverty, health, education and empowerment.

The paper identifies the following key guiding principles as the way forward for the microfinance sector:

• The poor need a variety of financial services - not just loans;
• Interest rate ceilings can damage poor people's access to financial services;
• To reach significant numbers of poor people, financial sustainability is necessary;
• Microfinance is about building permanent financial institutions;
• The key constraint is the lack of institutional and human capacity;
• MFIs must:
  • Continuously improve/refine systems, products and delivery mechanisms,
  • Make appropriate investments in human and institutional capacity to ensure organizational sustainability.

The paper concludes that microfinance is a powerful instrument against poverty. To make it more effective, it is necessary to build flexible and reliable financial services that respond to the diverse needs of the poor.