Status of Microfinance in Western Europe - An Academic Review

This paper describes the Western European experience with microfinance so far and projects a view of its future. The paper describes:

• The evolution of microfinance in developing countries from “financing development” to “developing financing”;
• The roots of microfinance in Western Europe in terms of associations, individuals, the recent boom in the sector and the involvement of banks.

The paper states that in Western Europe:

• Microfinance is still a social cause, and as a result, microfinance schemes have not managed to overcome the obstacles of outreach and financial sustainability.
• Four different models of microfinance exist, these include:
  • Non-government organizations (NGOs), with a microfinance approach;
  • NGOs with a target-group driven approach;
  • Support programs instituted by existing institutions and development banks;
  • Specialized units of banks.

It then discusses the current knowledge about demand, operational levels, institutional levels, donor perspectives, the microfinance environment and impact in Western Europe, and concludes that:

• Microfinance is still young, but effective in Western Europe;
• Achieving organizational self-sufficiency, operational efficiency and growth in number of loans disbursed are the main challenges that microfinance providers face;
• There is a need for demand orientation in microfinance;
• The environment for microfinance is changing and this creates chances;
• There is a need to build an inclusive and entrepreneurial economy, in which microfinance would be a driving force.