The Scope for Policy Reforms in Rural Microfinance

This brief considers the scope for policy action in seven areas in rural microfinance, namely MFI regulation, provision of saving services, product innovation, organizational issues, poverty impact, agricultural finance, and subsidy and sustainability issues.It states that regulation should aim to create a policy and legal framework that makes it feasible and attractive for MFIs to operate in rural areas and serve the poor on a sustainable basis. Key points include:

• Saving services should respond to the level and patterns of saving by the poor;
• Flexibility in deposits and withdrawals and the assurance of safe, prompt, and reliable services are important factors in designing successful saving products;
• Innovations in financial products need to be demand-oriented;
• Supply-side considerations include a conducive policy environment, and the MFIs organization and management structure;
• MFI organization principles should be aligned with organizational objectives;
• More research is needed for better impact assessment and to help microfinance practitioners operationalize poverty targeting and monitoring;
• Efforts to develop effective and sustainable microfinance services for small agricultural producers deserve priority;
• Subsidies can help build institutions that are likely to attain sustainability in a clear time frame.