Small and Microenterprise Finance: Guiding Principles for Selecting and Supporting Intermediaries

This paper explores the constraints of MSEs from a historical perspective. It notes that they have lacked access to the formal financial system, but that the growing success of many institutions provides confidence that access can be provided sustainability in many settings.

The paper further:

• Outlines a framework for donor support to MSEs in the areas of outreach and sustainability;
• Looks at agreed basic principles that can support successful micro-level finance, arguing that it is necessary that donors work in concert to ensure that lessons of success are translated to the institutions they support. Identifies institutional performance standards that intermediaries seeking support should be able to demonstrate;
• Posits that MSE clients are heterogeneous and therefore it is desirable to encourage a range of institutions that use specialized methods to serve their particular market niches. These can include commercial and development banks, credit unions, mutual or community banks, non-governmental organizations (NGOs), finance companies, co-operatives, savings and credit associations, and other specialized intermediaries. At the same time, however, fundamental principles of finance should be applied widely and must be observed by all institutions if they are to succeed;
• Concludes that donors must design their support mechanisms in ways that are consistent with best international practices and the long-run development of a sound financial system.

[Adapted from author]