Equitable Access to Financial Services: Is Microfinancing Sufficient?

This article examines how microlending can fulfill its promise of increasing poor people's access to financial services.MFIs are attractive to the poor, because they help pool resources, share risks, ensure creditworthiness and cushion seasonal fluctuations with savings. However, despite government and development agency support for its expansion, less then 50 percent of households worldwide have access to MFI services. Access is as less as 11.4 percent in Sub-Saharan Africa and the Middle East. MFIs have also been biased towards urban dwellers and excessively dependent on external funding. MFIs can improve service delivery by establishing links with commercial banks. Public policy should include direct lending to improve outreach to the poor. Finally, the following lessons from public policy in China and Vietnam are worth emulating:

• Providing selective interest rates, investment guarantees and export-promotion credit;
• Focusing on rural development through credit programs in labor-intensive sectors;
• Providing loans to poor households and beneficiaries in rural areas;
• Channeling finance into job creation.