Microfinance Tradeoffs [electronic resource] : Regulation, Competition, and Financing / Cull, Robert
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TextPublication details: Washington, D.C., The World Bank, 2009Description: 1 online resource (21 p.)Subject(s): Access to Finance | Banks | Banks and Banking Reform | Collateral | Debt Markets | Deposit | Emerging Markets | Entrepreneurs | Finance and Financial Sector Development | Financial Access | Financial services | Information asymmetries | Interest rates | International Bank | Loan | Loan size | Loan sizes | Microfinance | Microfinance institutions | Operating costs | Private Sector Development | Profitability | Remittance | Rural Development | Rural Finance | Savings | Transaction costs | Transactions costsAdditional physical formats: Cull, Robert.: Microfinance Tradeoffs.Online resources: Click here to access online Abstract: This paper describes important trade-offs that microfinance practitioners, donors, and regulators navigate. Drawing evidence from large, global surveys of microfinance institutions, the authors find a basic tension between meeting social goals and maximizing financial performance. For example, non-profit microfinance institutions make far smaller loans on average and serve more women as a fraction of customers than do commercialized microfinance banks, but their costs per dollar lent are also much higher. Potential trade-offs therefore arise when selecting contracting mechanisms, level of commercialization, rigor of regulation, and the extent of competition. Meaningful interventions in microfinance will require making deliberate choices - and thus embracing and weighing tradeoffs carefully.
This paper describes important trade-offs that microfinance practitioners, donors, and regulators navigate. Drawing evidence from large, global surveys of microfinance institutions, the authors find a basic tension between meeting social goals and maximizing financial performance. For example, non-profit microfinance institutions make far smaller loans on average and serve more women as a fraction of customers than do commercialized microfinance banks, but their costs per dollar lent are also much higher. Potential trade-offs therefore arise when selecting contracting mechanisms, level of commercialization, rigor of regulation, and the extent of competition. Meaningful interventions in microfinance will require making deliberate choices - and thus embracing and weighing tradeoffs carefully.
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