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Addressing some key questions on finance and poverty

Author

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  • Marguerite S. Robinson

    (Harvard Institute for International Development, Cambridge, MA, USA)

Abstract

Lady 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.

Suggested Citation

  • Marguerite S. Robinson, 1996. "Addressing some key questions on finance and poverty," Journal of International Development, John Wiley & Sons, Ltd., vol. 8(2), pages 153-161.
  • Handle: RePEc:wly:jintdv:v:8:y:1996:i:2:p:153-161
    DOI: 10.1002/(SICI)1099-1328(199603)8:2<153::AID-JID372>3.0.CO;2-6
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    Cited by:

    1. Mathilde Maîtrot & Miguel Niño-Zarazúa, 2017. "Poverty and wellbeing impacts of microfinance: What do we know?," WIDER Working Paper Series 190, World Institute for Development Economic Research (UNU-WIDER).
    2. Paul Mosley & June Rock, 2004. "Microfinance, labour markets and poverty in Africa: a study of six institutions," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(3), pages 467-500.
    3. Ekholm, Tommi & Krey, Volker & Pachauri, Shonali & Riahi, Keywan, 2010. "Determinants of household energy consumption in India," Energy Policy, Elsevier, vol. 38(10), pages 5696-5707, October.
    4. James C. Brau & Gary M. Woller, 2004. "Microfinance: A Comprehensive Review of the Existing Literature," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 9(1), pages 1-28, Spring.
    5. Mosley, Paul & Hulme, David, 1998. "Microenterprise finance: Is there a conflict between growth and poverty alleviation?," World Development, Elsevier, vol. 26(5), pages 783-790, May.

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