The field of microfinance has
come a long way since its
humble origins in Bangladesh in 1976. It has
helped many to get access to financial servicessavings, credit,
insurance, remittancesespecially to those who were previously
excluded from the formal financial system. According to
the Microcredit Summit Campaign Report 2007, as of December
31, 2006, 3,316 Microfinance Institutions (MFIs) from around
the world reported reaching over 133 million people, of which close
to 93 million were among the poorest when they took their first
loan. There are diverse players in the sector today including
governments, Non-Governmental Organizations (NGOs),
Non-Banking Financial Institutions (NBFCs), and commercial banks. Private
investors have entered the arena infusing equity in a number of
MFIs, and the trend of MFIs raising money from the capital markets is
only growing. Government support has also come in
the form of regulations. Several countries have
either established separate regulatory and supervisory frameworks
for MFIs or brought them under the banking regulatory authority.
Yet, a large number of people in developing countries,
especially in the rural areas, still lack access to basic financial
services. High transaction costs restrict the outreach of MFIs
to rural areas. Those living in remote and sparsely populated areas and
the very poor remain deprived of access to financial services.
MFIs have to constantly balance the issues of outreach and
sustainability in deciding how far and how fast they can expand their
operations. In the case of commercial banks too the set-up and
operational costs of a new branch often prove prohibitive. |
