Microfinance and the Poor

Should microfinance integrate with the mainstream financial systems?

In this note the author describes the emergence of microfinance as a reliable source to serve the so far un-served poor across the world. The paper argues that contrary to the common impression, poor people need and use a variety of financial services, including deposits, loans, and other services.

The author highlights that:

  • The poor need and use a broad range of financial services, including deposit accounts, insurance, and money transfers to relatives living elsewhere;
  • To achieve its full potential, microfinance must fully integrate with a developing country's mainstream financial system rather than being confined to a niche of the development community;
  • Microfinance has been widely credited with empowering women by increasing their contribution to household income and assets and thus, their control over decisions affecting their lives;
  • Today most leading MFIs operate on a commercial basis using the techniques and disciplines of commercial finance;
  • There is growing awareness that building financial systems for the poor means building sound domestic financial intermediaries that can mobilize and recycle domestic savings;
  • Creative new delivery channels and new information technology hold the promise to reduce risk and cut delivery costs.

The author concludes that the challenge for microfinance is find ways to better integrate a full range of microfinance services with mainstream financial systems and markets.

About this Publication

By Littlefield, E. , Rosenberg, R.