Do microfinance institutions reach the poorest?

The question raised in the title is an important one to the microfinance sector, especially since the Microcredit Summit held in Washington, DC, in 1997. In order to gain more transparency on the depth of poverty outreach, the Consultative Group to Assist the Poorest (CGAP) supported research at IFPRI during 1999 and 2000 to design and test a simple, low-cost operational tool to measure the poverty level of MFI clients relative to nonclients. This policy brief informs about the results from recent case studies on the poverty outreach of four selected microfinance institutions. The case studies were conducted for four MFIs world-wide: MFI A (Central America), MFI B (East Africa), MFI C (Southern Africa), and MFI D (South Asia).Microenterprises Finance. ,Finance Developing countries. ,Financial institutions. ,Finance Southern Africa. ,Finance Central America. ,Finance South Asia. Finance Africa, East. ,

Impact Analysis of Microfinance in Nigeria

This paper applies the financing constraints approach to study whether microfinance institutions improved access to credit for microenterprises in Nigeria or not. According to this approach, microenterprises with improved access to credit rely less on internal funds for their investments. Thus, investment sensitivity to internal funds of micro enterprises in Lagos State (a municipal with significant presence of Microfinance Banks (MFBs) was compared to that of micro enterprises in Ekiti State (a municipal with no (or limited) presence of MFBs) using a cross sectional survey method and Microfinance Institutions (MFI) branch location data. Results indicate that MFBs alleviated micro businesses’ financing constraints. This approach is applicable to evaluating microfinance impact in other countries

Microfinance Interventions and Empowerment of Women Entrepreneurs Rural Constituencies in Kenya

Microfinance Institutions (MFIs) provide its members with financial and social intermediation services to help improve their businesses. Despite a multitude of studies devoted to the topic, the effect of microfinance intervention on the empowerment of women entrepreneurs in rural constituencies remains largely unexplored in Kenya. This paper seeks to bridge the gap by establishing the effect of microfinance interventions on empowerment of women entrepreneurs in Mogotio Constituency in Kenya. It focused on three specific objectives to: determine the effect of micro credit on empowerment of women entrepreneurs, examine the effect of micro savings on empowerment of women entrepreneurs and, finally establish the effect of training on empowerment of women entrepreneurs. The paper adopts a causal survey research design through which 80 members of microfinance institutions (MFIs) in the study area were selected and data collected from them using a structured questionnaire. Linear multiple regression was used to determine the MFI intervention constructs that affected micro finance intervention. SPSS was used to generate the frequency distribution.  Results show that except for microfinance saving, other MFI interventions such as microfinance credit and microfinance training significantly and positively affect empowerment of women entrepreneurs.  The study makes policy recommendations to guide development of microfinance interventions that are beneficial to the clients and other stakeholders of the MFI institutions. Keyword: Microfinance Interventions, Empowerment of Women Entrepreneurs;  Constituencies in Kenya

The role of the state in promoting microfinance institutions

In a context of liberalized financial systems, microfinance allows millions of households, usually excluded from classical financial services, to begin or reinforce their own activities and become microentrepreneurs. Yet, in spite of the success of numerous microfinance institutions (MFI), many difficulties remain which must be urgently resolved in view of their ambitious objectives. First, a large number of the rural households still lack access to financial services. Second, most of the existing MFI are not yet financially sustainable. Finally, while funds from governments and donors are rapidly increasing, financial institutions still need solid foundations to avoid management failures. These issues raise questions of the role of the state to promote MFI including (1) which state-owned institutions may be necessary? (2) which level and type of subsidization of the financial institutions can be accepted? (3) what can be the choice for the state between alternative investments in financial institutions or complementary services? (4) what are the necessary conditions for creating a favorable environment? This paper presents the evolution of views on the role of the state in the financial system including theoretical and empirical points of view from the interventionist period of the 1960s and 1970s to the current period of liberalization. Based on country case studies illustrating the divergent role of the state in the development of the rural financial system, the paper reviews the respective role of the state, the NGO and the private commercial banks in increasing their outreach and in adopting microfinance innovations. It also analyzes different issues regarding regulation of MFI.FCND ,Small business Finance. ,Financial institutions. ,Government. ,

The role of the state in promoting microfinance institutions

In a context of liberalized financial systems, microfinance allows millions of households, usually excluded from classical financial services, to begin or reinforce their own activities and become microentrepreneurs. Yet, in spite of the success of numerous microfinance institutions (MFI), many difficulties remain which must be urgently resolved in view of their ambitious objectives. First, a large number of the rural households still lack access to financial services. Second, most of the existing MFI are not yet financially sustainable. Finally, while funds from governments and donors are rapidly increasing, financial institutions still need solid foundations to avoid management failures. These issues raise questions of the role of the state to promote MFI including (1) which state-owned institutions may be necessary? (2) which level and type of subsidization of the financial institutions can be accepted? (3) what can be the choice for the state between alternative investments in financial institutions or complementary services? (4) what are the necessary conditions for creating a favorable environment? This paper presents the evolution of views on the role of the state in the financial system including theoretical and empirical points of view from the interventionist period of the 1960s and 1970s to the current period of liberalization. Based on country case studies illustrating the divergent role of the state in the development of the rural financial system, the paper reviews the respective role of the state, the NGO and the private commercial banks in increasing their outreach and in adopting microfinance innovations. It also analyzes different issues regarding regulation of MFI.FCND ,Small business Finance. ,Financial institutions. ,Government. ,

An Impact Analysis of Microfinance in Bosnia and Herzegovina

This paper applies the financing constraint approach to study whether microfinance institutions improved access to credit for microenterprises in Bosnia and Herzegovina. According to this approach, microenterprises with improved assess to credit rely less on internal funds for their investments. Thus, we compare investment sensitivity to internal funds of micorenterprises in municipalities with significant presence of MFIs to that of micorenterprises in municipalities with no (or limited) presence of MFIs using Living Standards Measurement Survey and MFI branch location data. Results indicate that MFIs alleviated microbusinesses’ financing constraint. This approach is applicable to evaluating microfinance impact in other countries.microfinance, impact study, Microfinance Institutions, financing constraints, Eastern Europe, Bosnia and Herzegovina

Learning From Client Exit: What Do We Mean By Client Exit?

All microfinance institutions (MFIs) have clients who decide to leave their programme. Clients may leave for positive reasons for example they might have outgrown the size of the loans that the MFI can offer and be graduating to formal sector finance. They may also leave for negative reasons, such as business failure or a bad experience with the MFI. Furthermore, some clients who leave may decide to return at some stage in the future.Financial Economics,

Microfinance Institutions: Does Capital Structure Matter?

Microfinance Institutions (MFIs) have risen to the forefront as invaluable institutions in the development process. Nevertheless, capital constraints have hindered the expansion of microfinance programs such that the demand for financial services still far exceeds the currently available supply. Moreover, it is observed that microfinance organizations have had various degrees of sustainability. Thus, the question of how best to fund these programs is a key issue. Recognizing the potential of microfinance in the development process, this paper examines the existing sources of funding for MFIs by geographic region, and explores how changes in capital structure could facilitate future growth and improve the efficiency and financial sustainability of MFIs. Using panel data, I establish a link between capital structure and key measures of MFI success. Notably, I find causal evidence supporting the assertion that an increased use of grants by MFIs decreases operational self-sufficiency.Microfinance Institutions, capital structure, Financial Economics, F3, G21, G32, O1,

Corporate governance – Performance relationship in microfinance institutions (MFIs)

The relationship between governance and the performance of microfinance institutions (MFIs) is discussed in this paper. MFI performance encompasses both financial performance and outreach. Good governance in terms of strengthening stewardship, achievement of MFIs’ primary objectives and promoting further development of the industry have been asserted as key elements in the literature pertaining to MFI performance. Similarly, several cases concerning poor governance have been analysed. Good corporate governance has become more important due to the demand for transparency and accountability of funds utilised in microfinance activities. Further, MFIs need to have a solid governance framework to minimise the possibilities of management failures which may jeopardise the efficacious application of received funds from governments and donors. In prior studies, the nature of corporate governance practised by MFIs is less understood and no substantive work using multiple MFI outcomes over a number of years has been undertaken. The concerns raised in reviews of individual MFIs and normative discussions of what should constitute best practice do point to the need for better understanding of the nature of corporate governance practised by the MFIs and also, to understand the nature of the relationship that exists between institutional success and corporate governance especially for developing countries. This study therefore identifies and provides a framework for undertaking corporate governance research relating to MFIs

DETERMINANTS OF BORROWER DROPOUT IN MICROFINANCE: AN EMPIRICAL INVESTIGATION IN MALI

Repeat borrowing is critical for the long-term financial viability of microfinance institutions (MFIs), which provide financial services to low-income households in developing countries. Repeat borrowers reduce MFI administrative costs, lower risks, and increase institutional productivity. In this paper we study the determinants of borrower dropout of an MFI operating in an urban center in Mali. Specifically, we quantify the explicit and implicit costs that a borrower must incur in obtaining loans from an MFI.Financial Economics,