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Microfinance institutions in the development of financial markets

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Microfinance institutions in the development of financial markets

Author: Terberger, Eva Physical Description: páginas. 187-202 Date: December 2003 ECLAC symbol: LC/G.2216-P


For the last two decades, microfinance has ranked high on
the list of policy instruments for fighting poverty. Supporting
the creation of access to formal financial services for low-income
households holds out the promise of improving the
living conditions of poor families and fostering economic
development. Furthermore, it is claimed to be a very cost-effective
approach because some non-governmental
organizations (NGOs); that have been upscaled into
microbanks have shown that financial services can be offered
to low-income households while covering costs and even
earning a moderate profit. Recent studies, however, are
sceptical about the high expectations raised by the
microfinance approach, since profitable microfinance
institutions (MFIs); are the exception rather than the rule.
Institutional innovation is called for in order to reproduce
these rare successes on a larger scale. This article aims to
offer preliminary insights into the potential of two rather
new institutional alternatives to upscaling: the creation of
microfinance departments at existing for-profit banks (i.e.,
downscaling); and the founding of greenfield banks.