Financial Markets, Microfinance and Tourism in Developing Countries

This paper explores the role of the financial sector in alleviating poverty in the tourism sector.

Many developing countries promote tourism as a strategy to achieve economic growth. The tourism sector at destinations is mainly organized through micro- and small-scale enterprises (MSEs). These MSEs lack access to credit and other finance. MFIs have not yet stepped in to close this gap in supply and demand for finance in tourism destinations.

Domestic tourism MSEs are unable to compete against large international suppliers of accommodation and tourism services as they lack access to credit. As a result, the potential of positive local economic impacts from growth through tourism is not fully realized. To overcome these problems, the paper recommends:

• Further research to develop appropriate financial instruments that meet the needs of tourism MSEs;
• Commercial banks' role in innovating financial markets in tourism destinations;
• Use of MFIs' experience in uncollateralized lending techniques;
• Government action to facilitate domestic financial sector reform and delivery of specific financial products oriented towards tourism MSEs.