Lending Products: What Have We Learnt?

This paper explores the nature of innovations in the practice of micro-lending, using experiences from NGOs, Greenfield banks and downscaling operations with commercial banks in Latin America and Eastern Europe.

The paper presents common characteristics of "best practice" micro and small business credit:

• Analysis based on real cash flows of whole socio-economic unit;
• Loan officers responsible for entire credit cycle;
• Products highly standardized and few in number with equal installment loans being the norm;
• Products and processes designed to:
  • Maximize productivity and efficiency of institution;
  • Minimize waiting time and transaction costs for clients.

The author concludes with the following observations:

• Microfinance credit technology is mature;
• Innovation is incremental;
• New product development is primarily based on client demand and competitive pressure;
• There is evidence of some process improvements;
• The evidence on use of new information technology is not yet conclusive;
• Cost reduction, especially for extremely small loans, remains a major challenge.