The Growth of Commercial Microfinance Opportunities in Eastern Europe and the New Independent States

This paper argues that microfinance is poised for growth in Eastern Europe and the New Independent States, but is deterred by barriers to the flow of capital into MFIs.

It states that:

• Microfinance is still a fledgling industry in the former Eastern Bloc countries;
• Still, the recent growth of microfinance in the region has exceeded that in the rest of the world;
• There is an increase of interest among commercial MFIs that have discovered that the rate of return on microfinance can be higher in this region.

The paper discusses:

• The loss of state-owned enterprises and jobs in the Eastern Bloc;
• The demand for microcredit to start small businesses;
• The growth of microfinance with the financial and technical support of international aid;
• The attractions of microfinance: supportive government and non-government organization (NGO) policies, interest rates that cover costs, demand-driven products and a focus on increasing efficiency across the entire loan process.

The paper describes:

• The four basic types of MFIs operating in the region: credit-unions, NGO MFIs, microfinance banks and commercial banks;
• Several success stories of MFIs in Poland, Romania and Sarajevo, Bosnia-Herzegovina.

The paper concludes that the region suffers from various barriers that impede the flow of capital into MFIs. As these barriers erode, the growth of microfinance funds flowing into this region is likely to accelerate.