The Commercialization of Microfinance: Balancing Business and Development

The Commercialization of Microfinance: Balancing Business and Development

The Commercialization of Microfinance: Balancing Business and Development

The Commercialization of Microfinance: Balancing Business and Development

Synopsis

• Addresses key issues related to bringing microfinance into the commercial realm
• Written by prominent practitioners and scholars from a variety of organizations

While many microfinance organizations started as NGOs, there is now a growing movement for them to transform into regulated, for-profit entities. Concurrently, commercial banks, credit unions, and specialized investors are also entering the market. The Commercialization of Microfinance synthesizes case studies from Latin America and beyond, delving into the trends and challenges of converting microfinance institutions into commercial entities.

Prepared by ACCION, this book will be essential reading for anyone interested in understanding how the world of microfinance is changing, and how that world affects the broader processes of development.

Excerpt

This book builds on work completed under the United States Agency for International Development (USAID) project Microenterprise Best Practices, or simply, MBP. MBP began in 1996 shortly after the publication of The New World of Microenterprise Finance (Otero and Rhyne 1994) and ended in 2001 with the production of the manuscript for this book.

During this time period, microenterprise finance evolved into the shortened term microfinance. This is not simply a grammatical shortcut but rather a change in thinking and perspective. The focus shifted from making the microenterprise viable to making the microfinance provider viable. As Christen and Drake point out, this focus on profitability of microfinance providers is the heart of commercialization, and it is the heart of this book.

This book approaches commercialization both from the standpoint of nongovernmental organizations (NGOs) transforming into regulated financial institutions (see the chapters by White and Campion, and Otero and Chu) as well as exploring the for-profit sector delving into a “market” normally served by NGOs (Mommartz and Schor, and Valenzuela). Meanwhile, Lennon and Richardson discuss a shifting from within as credit unions renovate and upgrade methodologies and standards of practice keeping pace with, and in some cases, out-distancing, the professionalization of the sector.

The following chapters draw heavily on the commercialization experiences in Latin America. This is by choice. Latin America is sometimes said to be a generation ahead of other regions with respect to the development of the microfinance sector. Therefore, it was felt that these experiences (many of which had been documented by MBP research) should be shared in order to provide road markers so others might follow the same path or, in other cases, to post signs warning of potholes, barriers, and collapsed bridges. The cases of Corposol (Lee) and FASSIL (Curran), go a long way toward charting the difficulties, challenges, and rewards . . .

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