Microfinance: Lessons Learned in Latin America

This document is based on the hypothesis that the mistakes of the past may contain valuable lessons for the future. The mistakes reveal which policies and concepts are coherent and consistent with the goals of benefiting maximum number of people deprived from financial services.

The study discusses the key learnings from half a century of interventions. It lists down the most important challenges and how they were resolved:

• Total cost of debt, rather than the interest rate, is most important;
• Deposits are as significant as credit;
• Governance is essential for sustainability;
• Regulatory framework is not sufficient;
• Institutional support is as vital as the investment itself.

The document states that despite imbibing the lessons of the past, the microfinance sector is still not mature and has not been able to attract commercial finance. The document lists down the following key obstacles to attract commercial finance in Latin America's microfinance sector:

• Lack of information about industry standards with the microfinance institutions;
• Poor legal framework to provide protection to commercial investors;
• Presence of subsidies that distort competition;
• Risk of negative political interventions;
• Lack of partnership with commercial banks.

The study concludes by stating that:

• The microfinance program has performed better than the rural credit program due to a development oriented approach toward credit in a decentralized manner;
• A lot has been gained from the failure of the past yet large obstacle still need to be tackled for the progress ahead.