Microfinance Essentials: A Synthesis of Lessons Learned

This issue of Essentials captures some insights on providing quality financial services to the poor on a sustained basis.

Microfinance has emerged as a growing industry to provide financial services to poor people. Until recently, it focused primarily on providing microcredit for microenterprises. Now, however, there is recognition that poor people need a variety of financial services in addition to credit. Current microfinance, therefore, provides a range of financial services, including credit, savings and insurance, to poor enterprises and households.

Microfinance was pioneered by specialized NGOs that challenged conventional wisdom of the 1970s. They discovered that with new lending methods, the rural poor repaid loans on time. Lessons learned about the role of microfinance services include:

• Do not restrict loan use;
• Provide access to financial services, not subsidies;
• Financial services contribute to women's empowerment;
• Support institutions, not projects;
• Successful MFIs must reach large numbers of clients and become financially self-sufficient;
• Sustainability and serving the poor are not conflicting objectives;
• Savings services are important in microfinance;
• Government should facilitate, not over-regulate, microfinance operations;
• Understand the limitations of microfinance.