Microfinance: A View from the Fund

This paper is part of the International Monetary Fund's (IMF) contributions to the United Nations initiative, and provides an overview of the potential role of the IMF in microfinance. Covering a large range of issues, the paper is broadly divided into four sections.

The first section assesses:

• The size and scope of microfinance institutions (MFIs);
• Whether MFIs can become commercially viable.

The second section discusses policy issues concerning microfinance. From the public policy perspective, microfinance involves three different aspects:

• Microfinance and economic efficiency;
• Microfinance and equality;
• Regulation and supervision of microfinance.

This section also touches upon complementary public policies that may help increase the reach of financial markets to the poor.

The third section focuses on:

• The role of international financial institutions in microfinance;
• The activities of the World Bank Group and other institutions in promoting microfinance;
• The potential role of the IMF in supporting microfinance activities.

The fourth section highlights the following:

• Microfinance activity has grown recently and MFIs are in many countries at different stages of development;
• Microfinance activities pose public policy choices that deserve careful consideration;
• Microfinance can also serve as a vehicle for poverty reduction, but prolonged subsidization of MFIs can be detrimental;
• Regulation and supervision of MFIs is still at an early stage and appears to be lax in the majority of countries;
• The current overlap between the IMFA's mandate and microfinance activities appears to be limited.