Addressing Some Key Questions on Finance and Poverty

Publication Date: 1996
Published by: Wiley Publishers
Document Type: Journal Article

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What are the strategies for providing finance against poverty?

This aricle addresses questions about institutional staffing, effects of microfinance on poorest of the poor, roles of donor agencies and banks, and social and economic benefits of sustainable microfinance.

It suggests following as necessary ingredients for microfinance success:

• Adequate guidelines and industry standards for microfinance institutions;
• Good macroeconomic management and development of appropriate regulatory framework and supervisory system by governments for such institutions;
• Commercial microfinance institutions should demonstrate they can become self-sufficient within 2-3 years;
• Interest rates charged on loans must cover all costs, both financial and non-financial, if the institution is to become profitable. Working poor can afford these rates which are usually below one-sixth of the rates that poor typically pay to informal commercial lenders;
• Commercial microcredit is preferable as financed by local savings mobilisation and can attain broad coverage among the working poor compared to subsidized credit which is capital constrained and can reach relatively few borrowers, usually the local elites.