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The triangle of microfinance


  • 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.

Suggested Citation

  • Zeller, Manfred & Meyer, Richard L., 2002. "The triangle of microfinance," Food policy statements 40, International Food Policy Research Institute (IFPRI).
  • Handle: RePEc:fpr:fpstat:40

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    Cited by:

    1. 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.
    2. 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.
    3. Janvier D. Nkurunziza & Léonce Ndikumana & Prime Nyamoya, 2012. "The Financial Sector in Burundi," NBER Working Papers 18289, National Bureau of Economic Research, Inc.
    4. 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.
    5. Kreuz, Claudia., 2006. "Microlending in Germany," ILO Working Papers 993885023402676, International Labour Organization.
    6. 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.
    7. repec:ilo:ilowps:388502 is not listed on IDEAS
    8. 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).
    9. Martin Petrick, 2005. "Empirical measurement of credit rationing in agriculture: a methodological survey," Agricultural Economics, International Association of Agricultural Economists, vol. 33(2), pages 191-203, September.
    10. 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.
    11. 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.
    12. 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.
    13. Janvier D. Nkurunziza & Léonce Ndikumana & Prime Nyamoya, 2014. "The Financial Sector in Burundi: An Investigation of Its Efficiency in Resource Mobilization and Allocation," NBER Chapters,in: African Successes, Volume III: Modernization and Development, pages 103-156 National Bureau of Economic Research, Inc.
    14. Gerald Epstein & Ilene Grabel, 2007. "Financial Policy," Publications 3, International Policy Centre for Inclusive Growth.
    15. 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.
    16. 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.
    17. 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.

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