Rural Remote Microfinance and Selfish Genes
This paper was commissioned by the Microcredit Summit Campaign in 2006.The paper argues that member-owned financial institutions increase access to financial services in remote areas. It states that:
- Remote poor need access to the financial system and not merely financial capital;
- Savings-based semi-formal financial institutions, such as self-help groups, serve this need well;
- However, semi-formal institutions may require different support than MFIs that seek permanence and scale;
- In order for these semi-formal financial institutions to really have an impact in terms of breadth of outreach, they need to adapt within their context;
- Transforming into a more formal financial institution is not the only option; several cases have demonstrated that semi-formal institutions can remain decentralized if they are appropriately linked;
- The key is to draw on both the local and the linked;
- Self-management that draws on local leadership significantly reduces the transaction cost, making it possible to reach remote areas and reduce the lending cost of capital;
- However, linkages are useful in broadening the scope of products and other inputs such as increased funds for growth;
- Semi-formal institutions can be linked by becoming:
- Members of a financial institution;
- Networked but retaining some management autonomy;
- Networked in a centralized management structure.
The paper concludes by stating that donors and regulators have the capacity to facilitate or impede these linkages by understanding how these semi-formal institutions fit into the broader macro-environment.