A Survey on Microfinance for Developing Countries: A Social Responsible Investment Opportunity

This report reviews some of the main aspects of microfinance in underdeveloped countries. It describes the reasons why microfinance has succeeded in areas where traditional banks have failed. It attributes the success of microfinance to the adoption of innovative devices like group lending with self monitoring, short repayments, installments and small loans. The microfinance space is evolving and comprises mostly of several small MFIs competing to meet a potentially unlimited demand for financial services from the poor. The report discusses the spectrum of financial intermediaries serving the poor, from the primitive model of money lenders to the more advanced MFIs. The report states that while the success of microfinance has exceeded expectations, it faces obstacles in meeting its optimal goal of maximum outreach to the poor coupled with financial sustainability of MFIs. It draws the following conclusions from empirical evidence and academic research:

• Microfinance needs a flexible cultural and technical adaptation to local habits and needs;
• Rate ceilings or subsidies are not a solution to high interest rate charges;
• MFIs that are able to access global financial markets enjoy lower funding costs and sophisticated financial services.