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The triangle of microfinance


Author Info

  • Zeller, Manfred
  • Meyer, Richard L.


The initial success of microfinance programs in the 1970s led pioneers to think that many essential problems of the poor might be resolved by access to credit alone the ability to acquire assets, to start businesses, to finance emergency needs and to insure against illness and disaster. Part of that vision has certainly been realized. But much remains to be done. Most microfinance institutions (MFIs) are still small and vulnerable to constraints on their resources and to the risks inherent in single-issue portfolios. Most depend upon donors and governments to remain in operation. There is much waste and duplication, and some mature programs have declining loan recovery rates, even as competition for borrowers rises from conventional banks and finance companies. Analyzing the failures of credit programs aimed at small farmers and the successes of other programs showed the need for new understanding of the ways that poor households make spending, borrowing, and saving decisions. This area was previously neglected in policymaking on food security issues. The International Food Policy Research Institute (IFPRI) supported household surveys in nine Asian and African countries during the 1990s that analyzed formal and informal financial transactions, and it also evaluated the success of innovative approaches at some MFIs. The overall goal was to clarify the conditions under which state investment in microfinance programs might improve life for poor people more than state investment of the same funds in education, health, nutrition, or infrastructure development. The research led to the concept of the "critical triangle of microfinance" the need for any MFI to manage simultaneously the problems of outreach (reaching the poor both in terms of numbers and depth of poverty), financial sustainability (meeting operating and financial costs over the long term), and impact (having discernible effect upon clients' quality of life). This book elaborates on these objectives and shows that the most successful MFIs expand all sides of that triangle. Tradeoffs are sometimes inevitable, but even so, synergies among the three make the concept valuable from Author's Abstract.

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Bibliographic Info

Paper provided by International Food Policy Research Institute (IFPRI) in its series Food policy statements with number 40.

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Date of creation: 2002
Date of revision:
Handle: RePEc:fpr:fpstat:40

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Keywords: Microfinance ;


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Cited by:
  1. Aneel Karnani, 2006. "Mirage at the Bottom of the Pyramid," William Davidson Institute Working Papers Series wp835, William Davidson Institute at the University of Michigan.
  2. Gerald Epstein & Ilene Grabel, 2007. "Financial Policy," Publications 3, International Policy Centre for Inclusive Growth.
  3. Flore Gubert & François Roubaud, 2005. "Analyser l’impact d’un projet de Micro-finance : l’exemple d’ADéFI à Madagascar," Working Papers DT/2005/14, DIAL (Développement, Institutions et Mondialisation).
  4. Hudon, Marek & Traca, Daniel, 2011. "On the Efficiency Effects of Subsidies in Microfinance: An Empirical Inquiry," World Development, Elsevier, vol. 39(6), pages 966-973, June.
  5. Cécile Lapenu & Manfred Zeller & Martin Greely & Renée Chao-Béroff & Koenraad Verhagen, 2004. "Performances sociales : Une raison d'être des institutions de microfinance et pourtant encore peu mesurées. Quelques pistes," Mondes en développement, De Boeck Université, vol. 126(2), pages 51-68.
  6. Awojobi, Omotola & Bein, Murad, 2010. "Microfinancing for Poverty Reduction and Economic Development; a Case for Nigeria," MPRA Paper 33530, University Library of Munich, Germany, revised 11 Apr 2011.
  7. Kreuz, Claudia, 2006. "Microlending in Germany," ILO Working Papers 388502, International Labour Organization.
  8. Beatriz Armendariz & Bert D'Espallier & Marek Hudon & Ariane Szafarz, 2011. "Subsidy Uncertainty and Microfinance Mission Drift," Working Papers CEB 11-014, ULB -- Universite Libre de Bruxelles.
  9. Seibel, Hans Dieter & Felloni, Fabrizio, 2003. "Commercialisation de la microfinance: une expérience basée sur le modèle Grameen Bank aux Philippines," Working Papers 2003,2b, University of Cologne, Development Research Center.
  10. Arvind Ashta & Marek Hudon, 2009. "To whom should we be fair? Ethical issues in Balancing Stakeholder Interests from Banco Compartamos Case Study," Working Papers CEB 09-036.RS, ULB -- Universite Libre de Bruxelles.
  11. Weiss, John & Montgomery, Heather & Kurmanalieva, Elvira, 2003. "Micro finance and poverty reduction in Asia: what is the evidence?," MPRA Paper 33140, University Library of Munich, Germany.
  12. Finnemore, G.R.L. & Darroch, Mark A.G. & Lyne, Michael C., 2004. "Loan products to manage liquidity stress when broad-based black empowerment enterprises invest in productive assets," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 43(4), December.
  13. Mirko Bendig & Thankom Arun, 2011. "Microfinancial Services And Risk Management: Evidences From Sri Lanka," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 36(4), pages 97-126, December.


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