Critical Issues in Small and Microbusiness Finance

Examining a new approach for lending to small and microbusinesses

This paper highlights the difficulties involved in putting these convincing theories into practice. It observes that such problems originate from the impression given by some of the literature that designing and implementing development projects emphasising institution building aspects, a commercial orientation, and a financial sector perspective, is simple and straightforward. In the perception of their credit customers and of their potential savings customers, target group-oriented financial institutions which grant loans are operating in a risky field. It explains the three basic elements to the new approach to microfinance:

  • Focus on institution building;
  • Commercial approach;
  • Financial systems orientation.

The paper strongly recommends that development aid practitioners in the field of small and micro business lending make maximum use of these 'new' principles in their project work.

About this Publication

By Schmidt, R.H. & Zeitinger, C.P.