Microfinance as Business
This paper analyzes microfinance as a business and looks at how some MFIs succeed in reducing costs. It also covers the major innovations in product design and management techniques that have allowed MFIs to offer financial services to the risky clientele, and examines contextual factors that promote the growth of microfinance.While studying the innovations, the paper looks at the core product types, key features of product design and key business challenges. The paper finds that despite the above models and practices being widely prevalent, commercial success lies in adopting effective management techniques like hiring right, going to the customer, standardizing branch structure, providing autonomy and inculcating a culture of excellence in the team.As per the paper, the reason for wider prevalence of microfinance in some places like Bangladesh and Bolivia can be explained by variations in:
- Government policies;
- Economic circumstances;
- Wage rates of loan officers;
- Competition from non MFI private sector;
- Macro-economic stability;
- Regulatory environment.
The paper concludes be stating that:
- Commercial banks need to exercise care in adopting established models since the existing models may be popular due to business and regulatory constraints rather than by client necessity;
- A need for more rigorous evaluation of microfinance impact;
- Several disincentives to evaluation include cost, self selection and it being a public good; however, stakeholders should work to understand how MFIs succeed on both bottom lines as business and as agents of development.
