October 07, 2003

Making microfinance work in the Middle East and Africa


What is microfinance and why is it

Microfinance programs provide financial services - such as credit, deposit, and savings services-to the entrepreneurial poor that are tailored to their needs. Good microfinance programs are characterised by:

* Small, usually short-term loans, and secure savings products.
* Streamlined, simple borrower and investment appraisal.
* Alternative approaches to collateral.
* Quick disbursement of repeat loans after timely repayment.
* Above-market interest rates to cover the high transactions costs inherent in microfinance.
* High repayment rates.
* Convenient location and timing of services.

There are many types of microenterprises. At one end of the spectrum is, for example, the woman who sells vegetables. She operates her microenterprise for just a few hours a day because she has other responsibilities, such as taking care of her children. At the other end of the spectrum is the small enterprise that employs several workers. Though microenterprises create jobs and
contribute to GDP, they are often constrained by lack of access to financial services.

Providing financial services to the entrepreneurial poor increases household income, reduces unemployment, and creates demand for other goods and services-especially nutrition, education, and health services.

Posted by graeme at October 7, 2003 04:05 AM | TrackBack

A powerful article / report! Microfinance has moved from the position of an oddity to an accepted agenda item on the WB/IMF circuit, all within the space of 5 years or so.

It remains to be seen whether the WB/IMF interest will do it any harm or any good. One could almost predict a bit of a hype cycle coming up in a couple of years, given the respectibility it has earnt.

Posted by: Ian Grigg at October 8, 2003 11:26 PM