Assessing the Efficiency and Outreach of Microfinance Schemes

This paper assesses the informal sector of Metro Manila, such as lending- investors, ROSCAs, pawnshops, cooperatives and support NGOs. Focuses in particular on two aspects:

• Institutional capacity to reach low-income clients with very limited resources;
• Capacity to manage these resources efficiently, reflected in positive real interest rates, high repayment rates and local refinancing arrangements.

The object of the study is to identify areas for possible intervention. Conclusions include:

• Market for financial services in the urban informal sector is large and continues to grow;
• Microlending can be profitable to keep overheads very low;
• Deregulation and the very low capital requirement on lending investors and pawnshops have contributed to their growth;
• Although there is a huge potential for savings mobilisation among the urban informal sector, it lacks the technology to do so;
• Key constraints include funding to cover the initial up-front social investments required in building up groups and providing credit funds that are more readily and locally accessible;
• There is a need for a capability-building programme that makes use of existing networks to lower start up costs and ensure sustainability;
• It would be worthwhile to invest in developing microfinance experts capable of improving the performance of microfinance providers.

[Adapted from authors' abstract]