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To
most, microfinance means providing very poor families with
very small loans (microcredit) to help them engage in
productive activities or grow their tiny businesses.
Over time, microfinance has come to include a broader range of
services (credit, savings, insurance, etc.) as we have come to
realize that the poor and the very poor who lack access to
traditional formal financial institutions require a variety of
financial products.
Microcredit
came to prominence in the 1980s, although early experiments
date back 30 years in Bangladesh, Brazil and a few other
countries. The important difference of microcredit was
that it avoided the pitfalls of an earlier generation of
targeted development lending, by insisting on repayment, by
charging interest rates that could cover the costs of credit
delivery, and by focusing on client groups whose alternative
source of credit was the informal sector. Emphasis
shifted from rapid disbursement of subsidized loans to prop up
targeted sectors towards the building up of local, sustainable
institutions to serve the poor. Microcredit has
largely been a private (non-profit) sector initiative that
avoided becoming overtly political, and as a consequence, has
outperformed virtually all other forms of development lending.
Traditionally
microfinance was focused on providing a very standardized
credit product. The poor, just like anyone else, need a
diverse range of financial instruments to be able to build
assets, stabilize consumption and protect themselves against
risks. Thus, we see a broadening of the concept of
microfinance--- our current challenge is to find efficient and
reliable ways of providing a richer menu of microfinance
products. |
