Microfinance's Evolving Ideals: How They Were Formed, and Why They're Changing

This paper attempts to provide an insight into the worldwide interventions that have taken place in the financial affairs of the poor.

The author categorizes the developments in the microfinance space into three distinct phases, each characterized by a different way of working with the poor. These interventions and their key characteristics, as described in the paper, are summarized below:

Development finance approach:

• Focus is on on moderately poor farmers as vehicles for national development;
• Credit is offered for modernization of agriculture and increase in farm output through capital investments;
• Development finance institutions provide subsidized loans;
• Was adopted by Bank Rakyat Indonesia (BRI) in the 1970s.

Microcredit approach:

• Small loans are offered to women owned microenterprises;
• Experimentation was done with cooperative and self-help approaches;
• Loans are provided to the non-farm sector;
• Is run by non-bureaucratic grass roots level NGOs;
• Has been popularized by the Grameen Bank in Bangladesh and BancoSol in Bolivia with slight variations in the 1980s.

Financial services approach:

• Has roots in the development finance and microcredit approaches;
• Offers wider range of products not only for credit but also savings and insurance tailored to meet the requirements of the poor;
• Ongoing developments have been adopted by the Grameen Bank in the form of Grameen II.

The author concludes by recommending the financial services approach as the way forward for microfinance.