Microfinance Tradeoffs: Regulation, Competition, and Financing
21 Pages Posted: 20 Apr 2016
Date Written: October 1, 2009
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.
Keywords: Access to Finance, Debt Markets, Banks & Banking Reform, Emerging Markets, Rural Finance
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