Current State of Development and Prospects for Microfinance Institutions

This paper is part of a research program that seeks to identify policies and institutional arrangements that help the poor integrate themselves into sustainable savings and credit systems in order to increase capacity to invest, bear risk, and preserve livelihoods.

The paper examines data from Bangladesh, Cameroon, China, Egypt, Ghana, Madagascar, Malawi, Nepal and Pakistan looking at the diversity of microfinance institutions (MFIs), their lending technologies, size and share of the market and legal status.

It presents the following findings:

• The concentration of activity among large MFIs demonstrates the difficulty in significantly and rapidly increasing MFIs' breadth of outreach;
• There are several arguments in favor of regulating financial institutions. These include:
  • The protection of savers;
  • Leveraging capital and mobilization of external sources;
  • Gaining an edge over informal competitors.
• Regulation is important for those non-governmental organizations that want to grow larger to serve more clients.

The paper recommends:

• Innovation and support for MFIs so that they can reach a significant scale in terms of the number of clients and volume of activity;
• That self-sufficient institutions, which concentrate on institutional building and financial autonomy, develop direct services or links for reaching the poor;
• Innovation in the areas of small-holder agriculture, credit for agri-business and insurance.