Rural Remote Microfinance and Selfish Genes

The formation of member-owned institutions to improve access to services in remote areas
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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.

About this Publication

By Lee, N.