The Institutional Evolution of the Microenterprise Field, 1989-1995

This article is available on pages 84-84 of this compilation document.

The U.S. Agency for International Development launched its Microenterprise Initiative in June 1994 in order to give greater priority to this field than ever before.

The most outstanding progress has been made in microfinance services. Commercial banks and other licensed financial institutions are starting to compete for their clients, which provides the poor with greater choice in services. This can only lead to greater value for these customers.

Institutional development remains at the centre of financial services development for the poor, but the institutional issues have changed radically since USAID launched the Growth and Equity through Microenterprise Investments and Institutions (GEMINI) Project in 1989.

Describes the main characteristics of the contemporary MFI sector:

• The central issue is not evolving programs but evolving institutions: moving non-bank institutions into the financial system and moving commercial banks into microfinance markets and services;
• The issue is how to manage institutions operating at scale, so that they can sustain rapid growth without overreaching themselves;
• The goal is profitability, so that the institutions can attract investment from local and international capital markets;
• The field's leaders look to local and international capital markets;
• With leading institutions taking in substantial local savings and investment capital, the central issue is how to implement effective external regulation and supervision.

Concludes remarking the importance of learning how to work with different types of institutions, particularly institutions owned and controlled by microenterprise entrepreneurs, which may provide more cost-effective means for delivering firm-level services.