Rejuvenating Bank Finances For Development in Asia and Pacific

This publication from the United Nations Economic and Social Commission for Asia and the Pacific offers eight perspectives on banking regulation and outreach. Three papers directly address issues of microfinance for individuals and microenterprises:

I. "Developing Sustainable Microfinance Systems" reviews the demand and supply of microfinance services, as well as their benefits and challenges. The author argues that microfinance is an effective tool to assist the poor, especially poor women, and that microfinance services have strengthened the social and human capital of the poor, particularly of women, at the household, enterprise, and community levels, in addition to having triggered a process toward broadening and deepening of rural financial markets. The paper emphasises the poverty reduction potential of microfinance, and points out the need for efficient institutional and market mechanisms whereby funds may be sourced and allocated efficiently through appropriately designed and priced services to the poor, for profitable investment in agriculture and micro-enterprises.

II. "Financing for micro-enterprises, small, medium-sized and cottage industries: Bangladesh Perspective" introduces Grameen Bank in Bangladesh as one of the successful microfinance institutes mainly because of its easy availability of funds and close supervision, and underscores the microfinance institutions as a vehicle of poverty alleviation and socio-economic-financing in the rural areas. In order to improve the performance of the microfinance institutions and micro-credit for targeting the poor, the following measures have been suggested: (1) Close cooperation among the microfinance institutions, banks and organs of the government for social welfare activities (2) An effective regulatory body to monitor the activities of microfinance, as well as streamlined and transparent accounting systems, management information systems services

III. "Financing for Micro-enterprises, small and medium sized business and poor households in the Philippines" provides an overview on the Philippine financial system, and the current status and constraints of bank lending to micro, small and medium-sized enterprises (MicSMEs). In order to improve the viability and competitiveness of MicSME financing the author suggests (1) improvement of infrastructure to reduce the cost of financial services, (2) more deposit mobilisation at lesser cost by making house-to-house visits to pick up deposits, (3) encouragement of large commercial banks to infuse equity into small banks such as rural banks, (4) increased competition among banks, (5) the central bank to adopt a risk-based supervision approach for microfinance and upgrade the capability of its staff to effectively utilise such an approach, and (6) the government to review loan portfolio regulations in order to give small banks, such as rural banks and small thrift banks, more flexibility in selecting their own clients.

Further conclusions and recommendations see that:

• Microfinance institutions play an important role in financial resource mobilization as well as poverty reduction strategy. Improved access to microfinance services such as credit and insurance can enable the poor households to develop their micro enterprises, enhance their income earning capacity, and achieve an improved quality of life;
• The emergence of microfinance services has also triggered a process toward broadening and deepening of the rural financial markets, by inculcating the saving habit among those who have limited or no access to the formal banking system;
• Steps need to be initiated to expand the reach of banks to broader segments of the population including particularly the SMEs and enterprises in the rural areas i.e. the less creditworthy, such as the poor and women who have no collateral to offer.