Time to Take the Credit

Microfinance can work. The idea of providing microloans to those who have not previously had access to formal financial services has firmly taken root, supported initially by charities, and then through international financial institutions (IFIs), and has now moved into the realm of profitability. IFI’s have been focusing on providing capital to the same small group of top-tier institutions for quite some time now, although these top-tier micro finance institutions (MFIs) are now attractive to commercial investment. The achievements of these institutions with the support of IFIs are laudable, yet they have reached a point where private investment can take over as funding source, but haven’t widely done so this far. Continued financing through aid monies has been discouraging private investment, hampering the move to fully self-sustained for-profit operations, and limiting the reach of aid money. The microlending market could be more widely covered with investment through commercial monies, and the freeing up of aid monies to be redirected where most needed such as the smaller scale MFI’s.

Original article can be found in The Economist of March 17th, 2007!