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Microfinance institutions in the development of financial markets

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  • Terberger, Eva

Abstract

For the last two decades, microfinance has ranked high on the list of policy instruments for fighting poverty. Supporting the creation of access to formal financial services for low-income households holds out the promise of improving the living conditions of poor families and fostering economic development. Furthermore, it is claimed to be a very cost-effective approach because some non-governmental organizations (NGOs); that have been upscaled into microbanks have shown that financial services can be offered to low-income households while covering costs and even earning a moderate profit. Recent studies, however, are sceptical about the high expectations raised by the microfinance approach, since profitable microfinance institutions (MFIs); are the exception rather than the rule. Institutional innovation is called for in order to reproduce these rare successes on a larger scale. This article aims to offer preliminary insights into the potential of two rather new institutional alternatives to upscaling: the creation of microfinance departments at existing for-profit banks (i.e., downscaling); and the founding of greenfield banks.

Suggested Citation

  • Terberger, Eva, 2003. "Microfinance institutions in the development of financial markets," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    • Handle: RePEc:ecr:col070:10994
    Note: Includes bibliography
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    File URL: http://repositorio.cepal.org/handle/11362/10994
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    1. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
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    Cited by:

    1. Mushtaq, Rizwan & Bruneau, Catherine, 2019. "Microfinance, financial inclusion and ICT: Implications for poverty and inequality," Technology in Society, Elsevier, vol. 59(C).
    2. Wagner, Charlotte & Winkler, Adalbert, 2013. "The Vulnerability of Microfinance to Financial Turmoil – Evidence from the Global Financial Crisis," World Development, Elsevier, vol. 51(C), pages 71-90.
    3. Tamgid Chowdhury, 2014. "Service delivery effectiveness of microcredit-driven non-government organizations in alleviating poverty: a study on Bangladesh," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 61(4), pages 347-377, December.
    4. Stanley Kojo Dary & Haruna Issahaku, 2013. "Exploring Innovations in Microfinance Institutions in Northern Ghana," Business and Economic Research, Macrothink Institute, vol. 3(1), pages 442-460, June.

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