Sustainability Of MFIs
Sustainability of Microfinance Institutions
1. Introduction
It is a fact that about 4 billion people worldwide live on less than US$2 per day (Microfinance Bulletin, 2008a, 7) and poverty is one of the major problems that is still prevailing in today’s world. Surprisingly more than 3 billion poor people seek access to basic financial services worldwide (Helms, 2006, ix) and were ignored by commercial banks for a very long time. For commercial banks the poor were seen as “unbankable” for decades because they cannot provide collateral. Robinson estimates that about 90 percent of the people in developing countries have no access to institutional financial services (Robinson, 2001, 9). Microfinance offers financial services to those who are not served by the traditional financial sector. Therefore it was one of the most important tools to help to solve this problem and bridge the gap for the poor; even if it is not a magic solution that cures all poverty.
The Nobel Prize winner in 2006, Professor Muhammad Yunus, was the one who showed with his Grameen bank that the concept of microfinance successfully works and that poor people proved to be viable customers. As Schmidt described in 2008, “microfinance is widely known and regarded as the most humane part of the international financial system, perhaps even the only humane part” (Schmidt, 2008, 1).
With such enormous numbers given, there is a great potential in this segment of global society and a disproportionately high demand for such financial services especially by the working poor. Therefore everybody jumped on the microfinance bandwagon with its comparatively high interest rates and repayment rates of almost 100 percent that make the poor borrowers more attractive for banks and international investors than other commercial lending in the traditional retail business. The recent trend of commercialization of microfinance institutions (MFIs) even underlines a run for profits from the business with poor
1. Introduction
It is a fact that about 4 billion people worldwide live on less than US$2 per day (Microfinance Bulletin, 2008a, 7) and poverty is one of the major problems that is still prevailing in today’s world. Surprisingly more than 3 billion poor people seek access to basic financial services worldwide (Helms, 2006, ix) and were ignored by commercial banks for a very long time. For commercial banks the poor were seen as “unbankable” for decades because they cannot provide collateral. Robinson estimates that about 90 percent of the people in developing countries have no access to institutional financial services (Robinson, 2001, 9). Microfinance offers financial services to those who are not served by the traditional financial sector. Therefore it was one of the most important tools to help to solve this problem and bridge the gap for the poor; even if it is not a magic solution that cures all poverty.
The Nobel Prize winner in 2006, Professor Muhammad Yunus, was the one who showed with his Grameen bank that the concept of microfinance successfully works and that poor people proved to be viable customers. As Schmidt described in 2008, “microfinance is widely known and regarded as the most humane part of the international financial system, perhaps even the only humane part” (Schmidt, 2008, 1).
With such enormous numbers given, there is a great potential in this segment of global society and a disproportionately high demand for such financial services especially by the working poor. Therefore everybody jumped on the microfinance bandwagon with its comparatively high interest rates and repayment rates of almost 100 percent that make the poor borrowers more attractive for banks and international investors than other commercial lending in the traditional retail business. The recent trend of commercialization of microfinance institutions (MFIs) even underlines a run for profits from the business with poor
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