Microfinance institutions (MFIs) provide financial services to low-income, economically active, borrowers who seek relatively small amounts to finance their businesses, manage emergencies, acquire assets, or smooth consumption (CGAP 2002). These borrowers usually lack credit histories, collateral, or both, and thus, do not have access to financing from mainstream commercial banks (Banerjee and Duflo, 2007). For this reason, MFIs are seen as playing a role in the creation of economic opportunity, and in poverty alleviation. Recognizing the importance that a number of donors had placed on microfinance as a tool to achieve the millennium development goals (MDGs), the United Nations declared 2005 as the “year of micro-credit”. (Morduch, 1999; United Nations, 2006).
MFIs are a heterogenous group that includes different types of institutions (e.g., banks, rural banks, non-bank financial institutions –NBFIs-, non-government organizations –NGOs-, credit unions, cooperatives), legal status (some are regulated and other unregulated), and purpose (including for profit and non profit institutions). MFIs lending portfolios vary greatly depending on the type of institution: banks and NBFIs usually concentrate on larger clients (including small enterprises), while loan sizes per client in cooperatives and NGOs are smaller (in particular as the latter are more likely to lend to groups). That said, lending portfolios of cooperatives and NGOs also differ, as the former are mostly member-based institutions that favor consumption smoothing to a larger extent than other microfinance providers.
Location contributes to heterogeneity, as MFIs adapt to different national regulations, and operate in countries with diverse access to international capital markets. Additionally, MFIs include both mature and young institutions, as the boom observed in this industry for the most part of the last two decades implied that a large number of new institutions entered into a market in which a number of mature institutions had operated for some time, and thus had time to build a reputation, and to “learn by doing”.
Contents
. Introduction
II. Global Trends in Microfinance 1998-2009
III. Data
IV. An Empirical Analysis of Microfinance Systemic Risk
V. An Empirical of Lending Rate Determinants
VI. Summary and Policy Implications
References
Annex
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The Impact of the Global Financial Crisis on Microfinance and Policy Implications
