Microfinance Meets the Market

Microfinance institutions have proved the possibility of providing reliable banking services to poor customers. Their second aim is to do so in a commercially-viable way. This paper analyzes the tensions and opportunities of microfinance as it embraces the market, drawing on a data set that includes 346 of the world's leading microfinance institutions and covers nearly 18 million active borrowers. The data show remarkable successes in maintaining high rates of loan repayment, but the data also suggest that profit-maximizing investors would have limited interest in most of the institutions that are focusing on the poorest customers and women. Those institutions, as a group, charge their customers the highest fees in the sample but also face particularly high transaction costs, in part due to small transaction sizes. Innovations to overcome the well-known problems of asymmetric information in financial markets were a triumph, but further innovation is needed to overcome the challenges of high costs.

Bibliographic Details

Main Authors:	Cull, Robert, Demirgüç-Kunt, Asli, Morduch, Jonathan
Language:	English
Published:	World Bank, Washington, DC 2008-05
Subjects:	ACCESS TO BANKS, ACCESS TO CREDIT, ACCESS TO FINANCE, ACCESS TO FINANCIAL SERVICES, ACCESS TO LOANS, ACCOUNTING, ACCOUNTING STANDARDS, AFFILIATE, AGRICULTURAL ECONOMICS, ASYMMETRIC INFORMATION, AUTOMATED TELLER MACHINES, AVERAGE INTEREST, AVERAGE INTEREST RATE, BANK BORROWERS, BANK CREDIT, BANK CUSTOMERS, BANK LOAN, BANK POLICY, BANKING SERVICES, BORROWER, BORROWING, BUSINESS LOANS, BUSINESS SCHOOLS, CALCULATIONS, CAPITAL COSTS, CAPITAL INVESTMENT, CAPITAL MARKET, CAPITAL MARKETS, CASH FLOWS, COLLATERAL, COMMERCIAL BANK, COMMERCIAL BANKS, COMMERCIAL BORROWING, COMMERCIAL INVESTMENT, CONSUMER, CONSUMER LOANS, CONTRIBUTIONS, COST OF CAPITAL, CREDIT ACCESS, CREDIT COOPERATIVES, CREDIT MARKETS, CREDIT UNION, CREDIT UNIONS, CUSTOMER BASE, DEBIT CARDS, DEBT, DEFAULT RATES, DEFAULTERS, DEPOSIT, DEPOSITORS, DEPOSITS, DEVELOPING COUNTRIES, DEVELOPING ECONOMIES, DONOR SUPPORT, EARNINGS, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, EMPLOYMENT, ENTREPRENEURS, EXCHANGE RATE, FACE VALUE, FAMILIES, FAMILY MEMBERS, FARM ENTERPRISES, FARMERS, FEMALE BORROWERS, FINANCIAL ACCESS, FINANCIAL DATA, FINANCIAL INFORMATION, FINANCIAL INSTITUTION, FINANCIAL INSTITUTIONS, FINANCIAL INTERMEDIARY, FINANCIAL LIVES, FINANCIAL MAINSTREAM, FINANCIAL MARKETS, FINANCIAL MEASURES, FINANCIAL OPTIONS, FINANCIAL PERFORMANCE, FINANCIAL SELF - SUFFICIENCY, FINANCIAL SELF-SUFFICIENCY, FINANCIAL STATEMENTS, FINANCIAL STRUCTURE, FINANCIAL SUSTAINABILITY, FINANCIAL TRANSACTIONS, FIXED COSTS, FOREIGN CAPITAL, FOREIGN DONORS, FOREIGN INVESTMENT, FORMAL FINANCIAL SERVICES, FUTURE LOANS, GENDER, GENDER EQUALITY, GENERAL PUBLIC, GLOBAL CAPITAL, GLOBAL CAPITAL MARKETS, GLOBALIZATION, GOVERNMENT BANKS, GROUP LENDING, GROUP-LENDING, GROUP-LENDING CONTRACTS, HANDICRAFTS, HIDDEN SUBSIDIES, HIGH INTEREST RATES, HOLDINGS, HOUSEHOLD INCOME, HOUSEHOLDS, IMPLICIT SUBSIDIES, IMPLICIT SUBSIDY, INCOME DISTRIBUTION, INCOME LEVEL, INCOMES, INFLATION, INITIAL PUBLIC OFFERING, INSENSITIVITY, INSTALLMENTS, INSURANCE, INTEREST INCOME, INTEREST RATE, INTERNATIONAL ACCOUNTING STANDARDS, INTERNATIONAL BANK, INTERNATIONAL FINANCE, INTERNATIONAL FINANCIAL INSTITUTIONS, INTERNATIONAL FINANCIAL STATISTICS, INTERNATIONAL STANDARDS, INVESTING, IPO, JOINT LIABILITY, LENDING INTEREST RATE, LIQUIDITY, LOAN, LOAN APPLICANTS, LOAN DECISION, LOAN LOSS PROVISIONS, LOAN PAYMENTS, LOAN PORTFOLIO, LOAN PORTFOLIO QUALITY, LOAN PORTFOLIOS, LOAN PRODUCTS, LOAN REPAYMENT, LOAN REPAYMENT RATES, LOAN REPAYMENTS, LOAN SIZE, LOAN SIZES, LOCAL CURRENCY, LONG-TERM LIABILITIES, LOW COST, LOW-INCOME, LOW-INCOME CUSTOMERS, LOW-INCOME PEOPLE, MARKET DATA, MFI, MFIS, MICRO-CREDIT, MICRO-FINANCE, MICRO-LOANS, MICROCREDIT, MICROENTERPRISES, MICROFINANCE, MICROFINANCE INSTITUTION, MICROFINANCE INSTITUTIONS, MICROFINANCE LENDING, MICROFINANCE LOANS, MICROFINANCE SECTOR, MONETARY FUND, MONEYLENDER, MONEYLENDERS, MUTUAL FUND, NON-PERFORMING LOANS, OPERATING COST, OPERATING COSTS, OPERATING EXPENSES, OUTREACH, OUTSTANDING BALANCE, POLITICAL RISK, POOR BORROWERS, POOR COMMUNITIES, PORTFOLIO QUALITY, POVERTY LEVELS, PRIME RATE, PRIVATE INVESTORS, PRIVATE SECTOR BANKS, PRODUCTIVITY, PROFITABILITY, PRUDENTIAL REGULATION, PUBLIC ECONOMICS, PUBLIC POLICY, PURCHASING POWER, PURCHASING POWER PARITY, RECENT LOANS, REPAYMENT INCENTIVES, REPAYMENT RATES, RESERVE, RESERVES, RETAINED EARNINGS, RETURN, RETURN ON ASSETS, RETURN ON EQUITY, RETURNS, RURAL BANK, RURAL BANKS, RURAL FINANCIAL MARKETS, SALE, SAVINGS, SAVINGS DEPOSITS, SAVINGS PRODUCTS, SENIOR, SMALL BUSINESSES, SMALL LOANS, SOCIAL MISSIONS, SOCIALLY RESPONSIBLE INVESTORS, SOFT LOANS, SOLIDARITY GROUP LENDING, START-UP, STATE BANKS, SUBSIDIZATION, TAX, TIME DEPOSITS, TOTAL COSTS, TRANSACTION, TRANSACTION COSTS, TRANSACTIONS COSTS, VALUABLE, VALUE ADDED TAXES, VILLAGE, VILLAGES, WORTH,
Online Access:	http://documents.worldbank.org/curated/en/2008/05/9473047/microfinance-meets-market https://hdl.handle.net/10986/6690
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