nep-mfd New Economics Papers
on Microfinance
Issue of 2007‒01‒14
three papers chosen by
Olivier Dagnelie
University of Namur

  1. Microfinance as Business By David Roodman; Uzma Qureshi
  2. The theoretical aspect of Muhammad Yunus’s dream-'putting poverty in museums' By Zaman, Md Monowaruz
  3. Credit cooperatives: overview of international experiences (In Spanish) By Delfiner, Miguel; Perón, Silvana; Pailhé, Cristina

  1. By: David Roodman; Uzma Qureshi
    Abstract: We analyze microfinance institutions (MFIs) as businesses, asking how some succeed in covering costs, earning returns, attracting capital, and scaling up. We draw on existing literature and interviews with industry players and academics. Key microfinance business challenges include building volume, keeping loan repayment rates high, retaining customers, and minimizing scope for fraud. Since the 1970s, microfinance innovators have developed clever solutions to these problems. Some have built huge organizations that serve thousands or millions of clients and have demonstrated an impressive capacity for change—in countries, to boot, with weak infrastructure and human capital. The individual innovations have spread both through a Darwinian process of selection and through cultural diffu-sion. We examine three kinds of determinants of commercial success: product design, management, and environmental factors such as regulation. We conclude that much about how microfinance is de-livered can be understood as responses to business imperatives. Indeed, the discoveries of techniques for cost-effective microfinance delivery are the real genius of microfinance, rather than the "discovery" that the poor can repay that dominates its public image. But by Occam's razor (simpler explanations are more plausible), the power of commercial imperatives to explain so many product design choices weakens an alternative explanation for them, namely that they are made primarily to help clients. These doubts point up the need for more rigorous impact evaluations of microfinance.
    Keywords: microfinance
    JEL: O16
    Date: 2006–11
  2. By: Zaman, Md Monowaruz
    Abstract: The present economy is based on capital based income structure. Grameen Bank has shown how zero capital owners become small capital owners by taking micro-credits. However micro-credit can create very limited economic density in an area that is insufficient to eradicate poverty unless the root causes of poverty are identified and counteracted. Neoclassical economics only focus on presently available capital although the capitalists are not created at once. A natural cycle of economics upholds economic, cultural and social values by its self-corrective nature. The natural economics is overridden by profit-motive institutional structure, where the market is not uniform or equal behaving for all segments of economic agents rather it is distributed as layers of energy states. A prudent utilization of all the opportunities targeting the poorest people of an economy will make benefited all in terms of new values, welfare and employment opportunities etc.
    Keywords: Micro Credit; Povert Alleviation; Social Business; Money-Market Dynamics; Cycle of Economics; Welfare; Grameen Bank; Worker's Share
    JEL: O16 O11 O21
    Date: 2007–01–02
  3. By: Delfiner, Miguel; Perón, Silvana; Pailhé, Cristina
    Abstract: This paper presents a comprehensive review on the activity of credit cooperatives in those countries where this sector has a long tradition and reached an important development. It describes the historical evolution in each country with special focus on the regulatory issues. The main differences between the cooperative financial sector and the traditional banking system are their corporative structure and the geographical area where these entities operate, which are a result of the market where they operate. We found an important development of a banking cooperative structure in those countries where the activity is significant, which is usually organized in federations and central entities operating with different products and services. This pyramidal structure is mainly related with the need of reaching economies of scale and synergies that local entities could not obtain. The federations provide services to local entities and represent them before the authorities. Central units work close to federations, providing a broad range of services too. This kind of structure, called cooperative net, allows local entities to exploit their relative advantages in contrast to big banks, related to the knowledge and geographical proximity to clients, but without having to suffer disadvantages in the variety of services they can provide.
    Keywords: Credit Unions; Cooperative Nets; Regulatory Issues
    JEL: G21
    Date: 2006–09

This nep-mfd issue is ©2007 by Olivier Dagnelie. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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