Microfinance Meets the Market

Microfinance institutions have proved the possibility of providing reliable banking services to poor customers. Their second aim is to do so in a commercially-viable way. This paper analyzes the tensions and opportunities of microfinance as it embr...

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Main Authors:	Cull, Robert, Demirgüç-Kunt, Asli, Morduch, Jonathan
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ACCESS TO BANKS ACCESS TO CREDIT ACCESS TO FINANCE ACCESS TO FINANCIAL SERVICES ACCESS TO LOANS ACCOUNTING ACCOUNTING STANDARDS AFFILIATE AGRICULTURAL ECONOMICS ASYMMETRIC INFORMATION AUTOMATED TELLER MACHINES AVERAGE INTEREST AVERAGE INTEREST RATE BANK BORROWERS BANK CREDIT BANK CUSTOMERS BANK LOAN BANK POLICY BANKING SERVICES BORROWER BORROWING BUSINESS LOANS BUSINESS SCHOOLS CALCULATIONS CAPITAL COSTS CAPITAL INVESTMENT CAPITAL MARKET CAPITAL MARKETS CASH FLOWS COLLATERAL COMMERCIAL BANK COMMERCIAL BANKS COMMERCIAL BORROWING COMMERCIAL INVESTMENT CONSUMER CONSUMER LOANS CONTRIBUTIONS COST OF CAPITAL CREDIT ACCESS CREDIT COOPERATIVES CREDIT MARKETS CREDIT UNION CREDIT UNIONS CUSTOMER BASE DEBIT CARDS DEBT DEFAULT RATES DEFAULTERS DEPOSIT DEPOSITORS DEPOSITS DEVELOPING COUNTRIES DEVELOPING ECONOMIES DONOR SUPPORT EARNINGS ECONOMIC DEVELOPMENT ECONOMIC GROWTH EMPLOYMENT ENTREPRENEURS EXCHANGE RATE FACE VALUE FAMILIES FAMILY MEMBERS FARM ENTERPRISES FARMERS FEMALE BORROWERS FINANCIAL ACCESS FINANCIAL DATA FINANCIAL INFORMATION FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARY FINANCIAL LIVES FINANCIAL MAINSTREAM FINANCIAL MARKETS FINANCIAL MEASURES FINANCIAL OPTIONS FINANCIAL PERFORMANCE FINANCIAL SELF - SUFFICIENCY FINANCIAL SELF-SUFFICIENCY FINANCIAL STATEMENTS FINANCIAL STRUCTURE FINANCIAL SUSTAINABILITY FINANCIAL TRANSACTIONS FIXED COSTS FOREIGN CAPITAL FOREIGN DONORS FOREIGN INVESTMENT FORMAL FINANCIAL SERVICES FUTURE LOANS GENDER GENDER EQUALITY GENERAL PUBLIC GLOBAL CAPITAL GLOBAL CAPITAL MARKETS GLOBALIZATION GOVERNMENT BANKS GROUP LENDING GROUP-LENDING GROUP-LENDING CONTRACTS HANDICRAFTS HIDDEN SUBSIDIES HIGH INTEREST RATES HOLDINGS HOUSEHOLD INCOME HOUSEHOLDS IMPLICIT SUBSIDIES IMPLICIT SUBSIDY INCOME DISTRIBUTION INCOME LEVEL INCOMES INFLATION INITIAL PUBLIC OFFERING INSENSITIVITY INSTALLMENTS INSURANCE INTEREST INCOME INTEREST RATE INTERNATIONAL ACCOUNTING STANDARDS INTERNATIONAL BANK INTERNATIONAL FINANCE INTERNATIONAL FINANCIAL INSTITUTIONS INTERNATIONAL FINANCIAL STATISTICS INTERNATIONAL STANDARDS INVESTING IPO JOINT LIABILITY LENDING INTEREST RATE LIQUIDITY LOAN LOAN APPLICANTS LOAN DECISION LOAN LOSS PROVISIONS LOAN PAYMENTS LOAN PORTFOLIO LOAN PORTFOLIO QUALITY LOAN PORTFOLIOS LOAN PRODUCTS LOAN REPAYMENT LOAN REPAYMENT RATES LOAN REPAYMENTS LOAN SIZE LOAN SIZES LOCAL CURRENCY LONG-TERM LIABILITIES LOW COST LOW-INCOME LOW-INCOME CUSTOMERS LOW-INCOME PEOPLE MARKET DATA MFI MFIS MICRO-CREDIT MICRO-FINANCE MICRO-LOANS MICROCREDIT MICROENTERPRISES MICROFINANCE MICROFINANCE INSTITUTION MICROFINANCE INSTITUTIONS MICROFINANCE LENDING MICROFINANCE LOANS MICROFINANCE SECTOR MONETARY FUND MONEYLENDER MONEYLENDERS MUTUAL FUND NON-PERFORMING LOANS OPERATING COST OPERATING COSTS OPERATING EXPENSES OUTREACH OUTSTANDING BALANCE POLITICAL RISK POOR BORROWERS POOR COMMUNITIES PORTFOLIO QUALITY POVERTY LEVELS PRIME RATE PRIVATE INVESTORS PRIVATE SECTOR BANKS PRODUCTIVITY PROFITABILITY PRUDENTIAL REGULATION PUBLIC ECONOMICS PUBLIC POLICY PURCHASING POWER PURCHASING POWER PARITY RECENT LOANS REPAYMENT INCENTIVES REPAYMENT RATES RESERVE RESERVES RETAINED EARNINGS RETURN RETURN ON ASSETS RETURN ON EQUITY RETURNS RURAL BANK RURAL BANKS RURAL FINANCIAL MARKETS SALE SAVINGS SAVINGS DEPOSITS SAVINGS PRODUCTS SENIOR SMALL BUSINESSES SMALL LOANS SOCIAL MISSIONS SOCIALLY RESPONSIBLE INVESTORS SOFT LOANS SOLIDARITY GROUP LENDING START-UP STATE BANKS SUBSIDIZATION TAX TIME DEPOSITS TOTAL COSTS TRANSACTION TRANSACTION COSTS TRANSACTIONS COSTS VALUABLE VALUE ADDED TAXES VILLAGE VILLAGES WORTH
Online Access:	http://documents.worldbank.org/curated/en/2008/05/9473047/microfinance-meets-market http://hdl.handle.net/10986/6690

id	okr-10986-6690
recordtype	oai_dc
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	ACCESS TO BANKS ACCESS TO CREDIT ACCESS TO FINANCE ACCESS TO FINANCIAL SERVICES ACCESS TO LOANS ACCOUNTING ACCOUNTING STANDARDS AFFILIATE AGRICULTURAL ECONOMICS ASYMMETRIC INFORMATION AUTOMATED TELLER MACHINES AVERAGE INTEREST AVERAGE INTEREST RATE BANK BORROWERS BANK CREDIT BANK CUSTOMERS BANK LOAN BANK POLICY BANKING SERVICES BORROWER BORROWING BUSINESS LOANS BUSINESS SCHOOLS CALCULATIONS CAPITAL COSTS CAPITAL INVESTMENT CAPITAL MARKET CAPITAL MARKETS CASH FLOWS COLLATERAL COMMERCIAL BANK COMMERCIAL BANKS COMMERCIAL BORROWING COMMERCIAL INVESTMENT CONSUMER CONSUMER LOANS CONTRIBUTIONS COST OF CAPITAL CREDIT ACCESS CREDIT COOPERATIVES CREDIT MARKETS CREDIT UNION CREDIT UNIONS CUSTOMER BASE DEBIT CARDS DEBT DEFAULT RATES DEFAULTERS DEPOSIT DEPOSITORS DEPOSITS DEVELOPING COUNTRIES DEVELOPING ECONOMIES DONOR SUPPORT EARNINGS ECONOMIC DEVELOPMENT ECONOMIC GROWTH EMPLOYMENT ENTREPRENEURS EXCHANGE RATE FACE VALUE FAMILIES FAMILY MEMBERS FARM ENTERPRISES FARMERS FEMALE BORROWERS FINANCIAL ACCESS FINANCIAL DATA FINANCIAL INFORMATION FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARY FINANCIAL LIVES FINANCIAL MAINSTREAM FINANCIAL MARKETS FINANCIAL MEASURES FINANCIAL OPTIONS FINANCIAL PERFORMANCE FINANCIAL SELF - SUFFICIENCY FINANCIAL SELF-SUFFICIENCY FINANCIAL STATEMENTS FINANCIAL STRUCTURE FINANCIAL SUSTAINABILITY FINANCIAL TRANSACTIONS FIXED COSTS FOREIGN CAPITAL FOREIGN DONORS FOREIGN INVESTMENT FORMAL FINANCIAL SERVICES FUTURE LOANS GENDER GENDER EQUALITY GENERAL PUBLIC GLOBAL CAPITAL GLOBAL CAPITAL MARKETS GLOBALIZATION GOVERNMENT BANKS GROUP LENDING GROUP-LENDING GROUP-LENDING CONTRACTS HANDICRAFTS HIDDEN SUBSIDIES HIGH INTEREST RATES HOLDINGS HOUSEHOLD INCOME HOUSEHOLDS IMPLICIT SUBSIDIES IMPLICIT SUBSIDY INCOME DISTRIBUTION INCOME LEVEL INCOMES INFLATION INITIAL PUBLIC OFFERING INSENSITIVITY INSTALLMENTS INSURANCE INTEREST INCOME INTEREST RATE INTERNATIONAL ACCOUNTING STANDARDS INTERNATIONAL BANK INTERNATIONAL FINANCE INTERNATIONAL FINANCIAL INSTITUTIONS INTERNATIONAL FINANCIAL STATISTICS INTERNATIONAL STANDARDS INVESTING IPO JOINT LIABILITY LENDING INTEREST RATE LIQUIDITY LOAN LOAN APPLICANTS LOAN DECISION LOAN LOSS PROVISIONS LOAN PAYMENTS LOAN PORTFOLIO LOAN PORTFOLIO QUALITY LOAN PORTFOLIOS LOAN PRODUCTS LOAN REPAYMENT LOAN REPAYMENT RATES LOAN REPAYMENTS LOAN SIZE LOAN SIZES LOCAL CURRENCY LONG-TERM LIABILITIES LOW COST LOW-INCOME LOW-INCOME CUSTOMERS LOW-INCOME PEOPLE MARKET DATA MFI MFIS MICRO-CREDIT MICRO-FINANCE MICRO-LOANS MICROCREDIT MICROENTERPRISES MICROFINANCE MICROFINANCE INSTITUTION MICROFINANCE INSTITUTIONS MICROFINANCE LENDING MICROFINANCE LOANS MICROFINANCE SECTOR MONETARY FUND MONEYLENDER MONEYLENDERS MUTUAL FUND NON-PERFORMING LOANS OPERATING COST OPERATING COSTS OPERATING EXPENSES OUTREACH OUTSTANDING BALANCE POLITICAL RISK POOR BORROWERS POOR COMMUNITIES PORTFOLIO QUALITY POVERTY LEVELS PRIME RATE PRIVATE INVESTORS PRIVATE SECTOR BANKS PRODUCTIVITY PROFITABILITY PRUDENTIAL REGULATION PUBLIC ECONOMICS PUBLIC POLICY PURCHASING POWER PURCHASING POWER PARITY RECENT LOANS REPAYMENT INCENTIVES REPAYMENT RATES RESERVE RESERVES RETAINED EARNINGS RETURN RETURN ON ASSETS RETURN ON EQUITY RETURNS RURAL BANK RURAL BANKS RURAL FINANCIAL MARKETS SALE SAVINGS SAVINGS DEPOSITS SAVINGS PRODUCTS SENIOR SMALL BUSINESSES SMALL LOANS SOCIAL MISSIONS SOCIALLY RESPONSIBLE INVESTORS SOFT LOANS SOLIDARITY GROUP LENDING START-UP STATE BANKS SUBSIDIZATION TAX TIME DEPOSITS TOTAL COSTS TRANSACTION TRANSACTION COSTS TRANSACTIONS COSTS VALUABLE VALUE ADDED TAXES VILLAGE VILLAGES WORTH
spellingShingle	ACCESS TO BANKS ACCESS TO CREDIT ACCESS TO FINANCE ACCESS TO FINANCIAL SERVICES ACCESS TO LOANS ACCOUNTING ACCOUNTING STANDARDS AFFILIATE AGRICULTURAL ECONOMICS ASYMMETRIC INFORMATION AUTOMATED TELLER MACHINES AVERAGE INTEREST AVERAGE INTEREST RATE BANK BORROWERS BANK CREDIT BANK CUSTOMERS BANK LOAN BANK POLICY BANKING SERVICES BORROWER BORROWING BUSINESS LOANS BUSINESS SCHOOLS CALCULATIONS CAPITAL COSTS CAPITAL INVESTMENT CAPITAL MARKET CAPITAL MARKETS CASH FLOWS COLLATERAL COMMERCIAL BANK COMMERCIAL BANKS COMMERCIAL BORROWING COMMERCIAL INVESTMENT CONSUMER CONSUMER LOANS CONTRIBUTIONS COST OF CAPITAL CREDIT ACCESS CREDIT COOPERATIVES CREDIT MARKETS CREDIT UNION CREDIT UNIONS CUSTOMER BASE DEBIT CARDS DEBT DEFAULT RATES DEFAULTERS DEPOSIT DEPOSITORS DEPOSITS DEVELOPING COUNTRIES DEVELOPING ECONOMIES DONOR SUPPORT EARNINGS ECONOMIC DEVELOPMENT ECONOMIC GROWTH EMPLOYMENT ENTREPRENEURS EXCHANGE RATE FACE VALUE FAMILIES FAMILY MEMBERS FARM ENTERPRISES FARMERS FEMALE BORROWERS FINANCIAL ACCESS FINANCIAL DATA FINANCIAL INFORMATION FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARY FINANCIAL LIVES FINANCIAL MAINSTREAM FINANCIAL MARKETS FINANCIAL MEASURES FINANCIAL OPTIONS FINANCIAL PERFORMANCE FINANCIAL SELF - SUFFICIENCY FINANCIAL SELF-SUFFICIENCY FINANCIAL STATEMENTS FINANCIAL STRUCTURE FINANCIAL SUSTAINABILITY FINANCIAL TRANSACTIONS FIXED COSTS FOREIGN CAPITAL FOREIGN DONORS FOREIGN INVESTMENT FORMAL FINANCIAL SERVICES FUTURE LOANS GENDER GENDER EQUALITY GENERAL PUBLIC GLOBAL CAPITAL GLOBAL CAPITAL MARKETS GLOBALIZATION GOVERNMENT BANKS GROUP LENDING GROUP-LENDING GROUP-LENDING CONTRACTS HANDICRAFTS HIDDEN SUBSIDIES HIGH INTEREST RATES HOLDINGS HOUSEHOLD INCOME HOUSEHOLDS IMPLICIT SUBSIDIES IMPLICIT SUBSIDY INCOME DISTRIBUTION INCOME LEVEL INCOMES INFLATION INITIAL PUBLIC OFFERING INSENSITIVITY INSTALLMENTS INSURANCE INTEREST INCOME INTEREST RATE INTERNATIONAL ACCOUNTING STANDARDS INTERNATIONAL BANK INTERNATIONAL FINANCE INTERNATIONAL FINANCIAL INSTITUTIONS INTERNATIONAL FINANCIAL STATISTICS INTERNATIONAL STANDARDS INVESTING IPO JOINT LIABILITY LENDING INTEREST RATE LIQUIDITY LOAN LOAN APPLICANTS LOAN DECISION LOAN LOSS PROVISIONS LOAN PAYMENTS LOAN PORTFOLIO LOAN PORTFOLIO QUALITY LOAN PORTFOLIOS LOAN PRODUCTS LOAN REPAYMENT LOAN REPAYMENT RATES LOAN REPAYMENTS LOAN SIZE LOAN SIZES LOCAL CURRENCY LONG-TERM LIABILITIES LOW COST LOW-INCOME LOW-INCOME CUSTOMERS LOW-INCOME PEOPLE MARKET DATA MFI MFIS MICRO-CREDIT MICRO-FINANCE MICRO-LOANS MICROCREDIT MICROENTERPRISES MICROFINANCE MICROFINANCE INSTITUTION MICROFINANCE INSTITUTIONS MICROFINANCE LENDING MICROFINANCE LOANS MICROFINANCE SECTOR MONETARY FUND MONEYLENDER MONEYLENDERS MUTUAL FUND NON-PERFORMING LOANS OPERATING COST OPERATING COSTS OPERATING EXPENSES OUTREACH OUTSTANDING BALANCE POLITICAL RISK POOR BORROWERS POOR COMMUNITIES PORTFOLIO QUALITY POVERTY LEVELS PRIME RATE PRIVATE INVESTORS PRIVATE SECTOR BANKS PRODUCTIVITY PROFITABILITY PRUDENTIAL REGULATION PUBLIC ECONOMICS PUBLIC POLICY PURCHASING POWER PURCHASING POWER PARITY RECENT LOANS REPAYMENT INCENTIVES REPAYMENT RATES RESERVE RESERVES RETAINED EARNINGS RETURN RETURN ON ASSETS RETURN ON EQUITY RETURNS RURAL BANK RURAL BANKS RURAL FINANCIAL MARKETS SALE SAVINGS SAVINGS DEPOSITS SAVINGS PRODUCTS SENIOR SMALL BUSINESSES SMALL LOANS SOCIAL MISSIONS SOCIALLY RESPONSIBLE INVESTORS SOFT LOANS SOLIDARITY GROUP LENDING START-UP STATE BANKS SUBSIDIZATION TAX TIME DEPOSITS TOTAL COSTS TRANSACTION TRANSACTION COSTS TRANSACTIONS COSTS VALUABLE VALUE ADDED TAXES VILLAGE VILLAGES WORTH Cull, Robert Demirgüç-Kunt, Asli Morduch, Jonathan Microfinance Meets the Market
relation	Policy Research Working Paper No. 4630
description	Microfinance institutions have proved the possibility of providing reliable banking services to poor customers. Their second aim is to do so in a commercially-viable way. This paper analyzes the tensions and opportunities of microfinance as it embraces the market, drawing on a data set that includes 346 of the world's leading microfinance institutions and covers nearly 18 million active borrowers. The data show remarkable successes in maintaining high rates of loan repayment, but the data also suggest that profit-maximizing investors would have limited interest in most of the institutions that are focusing on the poorest customers and women. Those institutions, as a group, charge their customers the highest fees in the sample but also face particularly high transaction costs, in part due to small transaction sizes. Innovations to overcome the well-known problems of asymmetric information in financial markets were a triumph, but further innovation is needed to overcome the challenges of high costs.
format	Publications & Research :: Policy Research Working Paper
author	Cull, Robert Demirgüç-Kunt, Asli Morduch, Jonathan
author_facet	Cull, Robert Demirgüç-Kunt, Asli Morduch, Jonathan
author_sort	Cull, Robert
title	Microfinance Meets the Market
title_short	Microfinance Meets the Market
title_full	Microfinance Meets the Market
title_fullStr	Microfinance Meets the Market
title_full_unstemmed	Microfinance Meets the Market
title_sort	microfinance meets the market
publisher	World Bank, Washington, DC
publishDate	2012
url	http://documents.worldbank.org/curated/en/2008/05/9473047/microfinance-meets-market http://hdl.handle.net/10986/6690
_version_	1764400677343199232
spelling	okr-10986-66902021-04-23T14:02:31Z Microfinance Meets the Market Cull, Robert Demirgüç-Kunt, Asli Morduch, Jonathan ACCESS TO BANKS ACCESS TO CREDIT ACCESS TO FINANCE ACCESS TO FINANCIAL SERVICES ACCESS TO LOANS ACCOUNTING ACCOUNTING STANDARDS AFFILIATE AGRICULTURAL ECONOMICS ASYMMETRIC INFORMATION AUTOMATED TELLER MACHINES AVERAGE INTEREST AVERAGE INTEREST RATE BANK BORROWERS BANK CREDIT BANK CUSTOMERS BANK LOAN BANK POLICY BANKING SERVICES BORROWER BORROWING BUSINESS LOANS BUSINESS SCHOOLS CALCULATIONS CAPITAL COSTS CAPITAL INVESTMENT CAPITAL MARKET CAPITAL MARKETS CASH FLOWS COLLATERAL COMMERCIAL BANK COMMERCIAL BANKS COMMERCIAL BORROWING COMMERCIAL INVESTMENT CONSUMER CONSUMER LOANS CONTRIBUTIONS COST OF CAPITAL CREDIT ACCESS CREDIT COOPERATIVES CREDIT MARKETS CREDIT UNION CREDIT UNIONS CUSTOMER BASE DEBIT CARDS DEBT DEFAULT RATES DEFAULTERS DEPOSIT DEPOSITORS DEPOSITS DEVELOPING COUNTRIES DEVELOPING ECONOMIES DONOR SUPPORT EARNINGS ECONOMIC DEVELOPMENT ECONOMIC GROWTH EMPLOYMENT ENTREPRENEURS EXCHANGE RATE FACE VALUE FAMILIES FAMILY MEMBERS FARM ENTERPRISES FARMERS FEMALE BORROWERS FINANCIAL ACCESS FINANCIAL DATA FINANCIAL INFORMATION FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARY FINANCIAL LIVES FINANCIAL MAINSTREAM FINANCIAL MARKETS FINANCIAL MEASURES FINANCIAL OPTIONS FINANCIAL PERFORMANCE FINANCIAL SELF - SUFFICIENCY FINANCIAL SELF-SUFFICIENCY FINANCIAL STATEMENTS FINANCIAL STRUCTURE FINANCIAL SUSTAINABILITY FINANCIAL TRANSACTIONS FIXED COSTS FOREIGN CAPITAL FOREIGN DONORS FOREIGN INVESTMENT FORMAL FINANCIAL SERVICES FUTURE LOANS GENDER GENDER EQUALITY GENERAL PUBLIC GLOBAL CAPITAL GLOBAL CAPITAL MARKETS GLOBALIZATION GOVERNMENT BANKS GROUP LENDING GROUP-LENDING GROUP-LENDING CONTRACTS HANDICRAFTS HIDDEN SUBSIDIES HIGH INTEREST RATES HOLDINGS HOUSEHOLD INCOME HOUSEHOLDS IMPLICIT SUBSIDIES IMPLICIT SUBSIDY INCOME DISTRIBUTION INCOME LEVEL INCOMES INFLATION INITIAL PUBLIC OFFERING INSENSITIVITY INSTALLMENTS INSURANCE INTEREST INCOME INTEREST RATE INTERNATIONAL ACCOUNTING STANDARDS INTERNATIONAL BANK INTERNATIONAL FINANCE INTERNATIONAL FINANCIAL INSTITUTIONS INTERNATIONAL FINANCIAL STATISTICS INTERNATIONAL STANDARDS INVESTING IPO JOINT LIABILITY LENDING INTEREST RATE LIQUIDITY LOAN LOAN APPLICANTS LOAN DECISION LOAN LOSS PROVISIONS LOAN PAYMENTS LOAN PORTFOLIO LOAN PORTFOLIO QUALITY LOAN PORTFOLIOS LOAN PRODUCTS LOAN REPAYMENT LOAN REPAYMENT RATES LOAN REPAYMENTS LOAN SIZE LOAN SIZES LOCAL CURRENCY LONG-TERM LIABILITIES LOW COST LOW-INCOME LOW-INCOME CUSTOMERS LOW-INCOME PEOPLE MARKET DATA MFI MFIS MICRO-CREDIT MICRO-FINANCE MICRO-LOANS MICROCREDIT MICROENTERPRISES MICROFINANCE MICROFINANCE INSTITUTION MICROFINANCE INSTITUTIONS MICROFINANCE LENDING MICROFINANCE LOANS MICROFINANCE SECTOR MONETARY FUND MONEYLENDER MONEYLENDERS MUTUAL FUND NON-PERFORMING LOANS OPERATING COST OPERATING COSTS OPERATING EXPENSES OUTREACH OUTSTANDING BALANCE POLITICAL RISK POOR BORROWERS POOR COMMUNITIES PORTFOLIO QUALITY POVERTY LEVELS PRIME RATE PRIVATE INVESTORS PRIVATE SECTOR BANKS PRODUCTIVITY PROFITABILITY PRUDENTIAL REGULATION PUBLIC ECONOMICS PUBLIC POLICY PURCHASING POWER PURCHASING POWER PARITY RECENT LOANS REPAYMENT INCENTIVES REPAYMENT RATES RESERVE RESERVES RETAINED EARNINGS RETURN RETURN ON ASSETS RETURN ON EQUITY RETURNS RURAL BANK RURAL BANKS RURAL FINANCIAL MARKETS SALE SAVINGS SAVINGS DEPOSITS SAVINGS PRODUCTS SENIOR SMALL BUSINESSES SMALL LOANS SOCIAL MISSIONS SOCIALLY RESPONSIBLE INVESTORS SOFT LOANS SOLIDARITY GROUP LENDING START-UP STATE BANKS SUBSIDIZATION TAX TIME DEPOSITS TOTAL COSTS TRANSACTION TRANSACTION COSTS TRANSACTIONS COSTS VALUABLE VALUE ADDED TAXES VILLAGE VILLAGES WORTH Microfinance institutions have proved the possibility of providing reliable banking services to poor customers. Their second aim is to do so in a commercially-viable way. This paper analyzes the tensions and opportunities of microfinance as it embraces the market, drawing on a data set that includes 346 of the world's leading microfinance institutions and covers nearly 18 million active borrowers. The data show remarkable successes in maintaining high rates of loan repayment, but the data also suggest that profit-maximizing investors would have limited interest in most of the institutions that are focusing on the poorest customers and women. Those institutions, as a group, charge their customers the highest fees in the sample but also face particularly high transaction costs, in part due to small transaction sizes. Innovations to overcome the well-known problems of asymmetric information in financial markets were a triumph, but further innovation is needed to overcome the challenges of high costs. 2012-05-30T19:20:22Z 2012-05-30T19:20:22Z 2008-05 http://documents.worldbank.org/curated/en/2008/05/9473047/microfinance-meets-market http://hdl.handle.net/10986/6690 English Policy Research Working Paper No. 4630 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research

Microfinance Meets the Market

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