Networks of Micro and Small Enterprise Banks: A Contribution to Financial Sector Development

This paper is a follow-up to an article published in Technique Financire et Developpement in 2000, which portrayed the first results of a new strategy in the field of development finance implemented in South-East Europe.

The strategy comprised creating microfinance banks as greenfield investments, that is:

• Building up new banks which specialize in providing credit and other financial services to micro and small enterprises, instead of transforming existing credit-granting non-government organizations (NGOs) into formal banks.

The paper shows that this strategy has, in the course of the last five years, led to the emergence of a network of microfinance banks operating in several parts of the world. It:

• Discusses why financial sector development is a crucial determinant of general social and economic development;
• Contrasts the new strategy to former approaches in the area of development finance;
• Describes the creation of investment company Internationale Mikro-Investitionen-AG's (IMI) investments: a set of specialized banks for small and very small enterprises;
• Informs about the shareholder composition of IMI.

The paper concludes that the creation of such a network is a promising approach to the creation of financially self-sustaining financial institutions with a clear developmental objective, because they:

• Make a difference to the clientele that they aspire to serve;
• Have a direct effect on poverty alleviation, by filling in the missing middle in loan supply;
• Demonstrate that microbanking can be commercially successful and socially relevant.