Banks in Microfinance: Guidelines for Successful Partnerships

This note is written for United States Agency for International Development's (USAID) staff and others who may consider approaching banks to develop microfinance programs. The note offers guidelines on approaching banks to enlist support in designing and implementing microfinance programs. They include:

• Ascertaining why a bank is interested in entering the microfinance market in order to determine its scale and sustainability;
• Analyzing market indicators to determine business potential for microfinance in banks;
• Reviewing internal factors to determine the bank's commitment to microfinance;
• Assessing requirement for outside technical assistance to design and launch a microfinance program;
• Supporting development of an enabling legal framework and market infrastructure to facilitate entry and expansion of banks in microfinance.

The paper lists challenges that banks face in designing and implementing microfinance programs such as defining target market, choosing a suitable operating and legal model, selecting appropriate pricing and costing, and managing human resources. The paper provides a list of banks that are successfully addressing challenges to establish sustainable microfinance programs that extend diverse financial services to previously marginalized clients.