Paper

The Commercialization of Microfinance in Latin America

Examining microfinance models in Latin America
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This paper traces the development of microfinance in Latin America, examines microfinance models, MFIs and sources of capital, and focuses on problems faced by the region’s microfinance industry. It discusses possible solutions that commercialization can provide if the industry is structured, regulated, and developed.

The growth of microfinance in Latin America has been largely fuelled by the private sector since the late 1990s. The paper identifies five main types of MFIs in the region, namely, commercial banks and consumer finance companies, regulated microfinance banks, credit unions and cajas, regulated MFI NGOs, and non-regulated MFI NGOs. The problems faced by the microfinance industry in Latin America include:

  • Migration of microcredit from group and peer lending programs towards individual loans;
  • Competition, market differentiation and over-indebtedness;
  • Lack of reporting, financial and accounting standards;
  • Lack of regulatory infrastructure conducive to growth of microfinance;
  • Mission drift in MFIs.

The paper states that microfinance will be recognized as a credible asset class and socially responsible investment if the industry succeeds in addressing these problems and risks.