Microfinance: How Bankers Could Buy Back Their Soul
This paper examines some of the problems that MFIs face and discusses the benefits of transforming into commercial entities. MFIs remain small and fragile, despite their adequacy to local needs. They lack the skills to assess project proposals or to adopt innovative financial tools. They lack medium and long term saving that they can transform into long term lending. Their refinancing through the formal banking sector is limited by lack of collateral and high refinancing costs. The paper suggests that these problems could be solved by:
- Easing MFIs capacity constraints through agreements between MFIs and non-financial service providers;
- Working with formal banks to strengthening MFI financial sustainability;
- Moving towards becoming a formal institution;
- Expanding services to include savings and insurance;
- Introducing specific legal provisions that allow MFIs to extend their lending activities to small and medium enterprises.
The paper recommends that MFIs should become an integral part of the financial sector, and develop as sound domestic intermediaries in order to reach more poor people. It suggests that they should go commercial, broadening their client bass and scaling up their loans to small enterprises.
