Bringing Development Back into Microfinance

The paper addresses three essential points of interaction between development and microfinance:

• The objective of reaching the poor at the client level by addressing capital investment from savings or borrowed money;
• Building private, sustainable and permanent institutions that specialise in delivering services to the poor;
• The intersection between microfinance and the financial systems in the country to deepen their reach.

All three of these points should be kept in mind by microfinance professionals to continue the path towards a successful development strategy. This relationship between microfinance and development is often overlooked because:

• Key debates divert attention, for example the controversy between reaching the poor and the sustainability of microfinance institutions;
• The biggest challenges in microfinance are institutional and the focus has been on the means - managerial, technical and systems capacity - rather than the end objectives. Continued innovation is necessary rather than defending a methodology;
• Best practice in microfinance is fused into two separate fields: development and microfinance; and they have not built a common language or ways of thinking.

The author concludes by stating that microfinance will fail if it forgets its target market and seeks quick profits. Development will fail if it forgets the basic principles of finance.