Breaking Down the Walls between Microfinance and the Formal Financial

This paper highlights the need to integrate microfinance services into mainstream financial systems and markets, so that microfinance can achieve its full potential. It presents evidence from around the world on microfinance’s poverty reduction impacts, and its integration into mainstream financial systems.

The paper states that microfinance has proven that it can reduce poverty, and be sustainable and profitable. However, it has been seen as a specialized niche of development, not relevant to the larger world of financial markets and systems. Key points include:

• Many people think of microfinance as an arena for socially oriented NGOs, not for banks and other mainstream financial players;
• There is dawning understanding that developing countries’ financial systems need to be more accessible to poor people;
• Building financial systems that serve poor clients is beginning to engage all kinds of financial institutions providing a wide range of financial services;
• Various stakeholders such as financial regulators and rating agencies are starting to play a part in developing sound, inclusive financial systems for poor people;
• Boundaries between microfinance and the formal financial sector are breaking down.