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Microfinance Institutions and Banks in Europe: The story to date

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  • Anastasia Cozarenco

Abstract

There is a large variety of MFI-bank partnerships in Europe. They are shaped by legislative and economical national contexts. MFIs generally have more than one partnership, in some cases with a consortium of banks. In most European countries, MFIs and banks are not in direct competition. They serve different segments of the market and provide complementary services. Collaboration benefits all parties. For MFIs, partnerships ease access to funding and cost reducing technologies. They contribute to the expansion of MFI lending activities and improve their financial performance. Banks benefit from a better image through corporate social responsibility. Microfinance facilitates the construction of a pool of prospective, profitable clients. Additionally, collaboration creates cross-selling opportunities for banks. Entering the microfinance market is in some cases risk free for banks. Clients have the advantage of proximity when the provision of microfinance takes place through bank branches. Borrowing from/through an MFI in cooperation with a mainstream bank represents the first step toward financial inclusion. Additionally, the services provided by MFIs are tailored to better address the needs of micro-borrowers. Regulatory constraints are not necessarily perceived as impediments by MFIs. Nevertheless, MFIs need to benefit from more autonomy to successfully comply with their social mission. The main challenge for MFIs involved in partnerships with banks is to make sure that the objectives of banks and MFIs are aligned to avoid the risk of the mission drift. Cooperation can be improved through long term commitments, the creation of multi-bank partnerships models, larger decision power given to MFIs, decreased complexity of the partnerships, increased awareness of banks about microfinance and standardisation of methods and criteria employed. MFIs in Europe diversify their funding sources using funding opportunities available from the European Union or using innovative alternative partnerships with crowdfunding and peer to peer platforms. They moreover collaborate with microinsurance companies, and to a smaller extent, mobile banking and transfer companies.

Suggested Citation

  • Anastasia Cozarenco, 2015. "Microfinance Institutions and Banks in Europe: The story to date," Working Papers CEB 15-027, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:sol:wpaper:2013/205339
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    References listed on IDEAS

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    1. Annabel Vanroose & Bert D’Espallier, 2013. "Do microfinance institutions accomplish their mission? Evidence from the relationship between traditional financial sector development and microfinance institutions’ outreach and performance," Applied Economics, Taylor & Francis Journals, vol. 45(15), pages 1965-1982, May.
    2. Beatriz Armendáriz & Ariane Szafarz, 2011. "On Mission Drift in Microfinance Institutions," World Scientific Book Chapters, in: Beatriz Armendáriz & Marc Labie (ed.), The Handbook Of Microfinance, chapter 16, pages 341-366, World Scientific Publishing Co. Pte. Ltd..
    3. Robert Cull & Asli Demirgüç-Kunt & Jonathan Morduch, 2014. "Banks and Microbanks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 46(1), pages 1-53, August.
    4. Annabel Vanroose, 2014. "Factors that explain the regional expansion of microfinance institutions in Peru," Working Papers CEB 14-030, ULB -- Universite Libre de Bruxelles.
    5. Anastasia Cozarenco & Ariane Szafarz, 2014. "Microcredit in Developed Countries: Unexpected Consequences of Loan Ceilings," Working Papers CEB 14-015, ULB -- Universite Libre de Bruxelles.
    6. 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.
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    Cited by:

    1. Cozarenco, Anastasia & Szafarz, Ariane, 2020. "The regulation of prosocial lending: Are loan ceilings effective?," Journal of Banking & Finance, Elsevier, vol. 121(C).

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