Addressing some key questions on finance and poverty
AbstractLady Chalker, the United Kingdom's Minister for Overseas Development, raised a number of fundamental questions in her Opening Remarks to the conference on 'Finance Against Poverty'. This paper suggests responses to her questions. Among them: (i) There are available guidelines for institutions providing microfinance, and industry standards are emerging; it is not necessary to await charismatic leaders. (ii) There is a clear role for government in microfinance development that includes both aspects of macroeconomic management and the development of a regulatory framework and system of supervision appropriate for institutions providing commercial microfinance. (iii) Experience demonstrates that institutions providing commercial microfinance can become self-sufficient within 2-3 years. (iv) The interest rates that must be charged on loans if the institution is to become profitable must cover all costs, both financial and non-financial. The working poor can afford these rates which are usually below one-sixth of the rates that the poor typically pay to informal commercial lenders. (v) Subsidized credit is capital constrained and can reach relatively few borrowers, usually the local elites; in contrast commercial microcredit, financed by locally mobilized savings, can attain broad coverage among the working poor. The paper also responds to questions about institutional staffing, the effect of microfinance on the poorest of the poor, the roles of donor agencies and banks, and the social and economic benefits of sustainable microfinance.
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Bibliographic InfoArticle provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.
Volume (Year): 8 (1996)
Issue (Month): 2 ()
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