Promoting Inclusive Markets and Financial Systems
SummaryMicrofinance institutions have proved the possibility of providing reliable banking services to poor customers.
Their second aim is to do so in a commercially-viable way. This paper analyzes the tensions and opportunities
of microfinance as it embraces the market, drawing on a data set that includes 346 of the world’s leading
microfinance institutions and covers nearly 18 million active borrowers. The data show remarkable successes
in maintaining high rates of loan repayment, but the data also suggest that profit-maximizing investors would have limited interest in most of the institutions that are focusing on the poorest customers and women.
Those institutions, as a group, charge their customers the highest fees in the sample but also face particularly
high transaction costs, in part due to small transaction sizes. Innovations to overcome the well-known problems
of asymmetric information in financial markets were a triumph, but further innovation is needed to overcome
the challenges of high costs.