Microfinance is now more than microcredit in developing countries, World Bank says

24 January 2005 –

The financial system that started off decades ago as just small loans to the poor has expanded into such diverse small-scale services for its clients as providing credit cards, setting up saving programmes that identify illiterate clients by a fingerprint and having audited financial standards for microfinance institutions, a World Bank executive said.

Outlining the financial services needs of poor people, World Bank director Elizabeth Littlefield told a symposium held over the weekend at the United Nations that in addition to loans, they need a safe place to save, not a coffee container that they bury in the dirt.

They need a secure way to transfer money from the urban area where they may be working to recipients in rural areas without resorting to carrying money in a paper bag on a bus, the chief executive of the Bank's Consultative Group to Assist the Poor (CGAP) told the event, organized by the Financial Women's Association (FWA).

The symposium, called "Microfinance in Transition - Becoming an Inclusive Financial Sector," was FWA's observance of the UN's International Year of Microcredit 2005, launched on 18 November last year.

Acknowledging that the data are still inexact, Ms. Littlefield said some developing countries' savings banks and post office banks have some 750 million accounts and even when they are loss-making, these institutions sometimes have countrywide infrastructures.

The institutions, which should take a position at the centre of their countries' financial policies and banking legislation, have been building diverse banking models, forming a "collage of competition" and innovation, and overlapping in soliciting poor people as customers, she said.

In 50 countries, governments or central banks are implementing policies for microfinance institutions (MFIs) and a dozen financial agencies are now rating them, she said.

In a dozen countries MFIs are issuing their own Visa and MasterCard credit cards and some, such as ADOPEM, the affiliate of Women's World Banking in the Dominican Republic, are using international ATM networks where the user pushes the button of the person dressed like herself and the machine addresses her in her language, she said.

In some countries, like Brazil and South Africa, the state bank is using lottery kiosks or retail shopping networks for point-of-sale (PoS) banking, Ms. Littlefield said.

The average rate of return on equity (ROE) is high at 32 per cent and the average increase in borrowers is 25 per cent per annum, she said.

She predicted that the policies of middle-income countries, such as Turkey and Mexico, would diverge from those of poor countries, such as Uganda and Benin, and that the more efficient institutions eventually would buy out the weaker ones.

Meanwhile, there was a universe of 120 MFIs in which investors could put money, she said, but of the $180 million now counted as private investment, much was public in origin, coming from the International Finance Corporation (IFC), the private sector arm of the World Bank Group, Ms. Littlefield said.

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