Formal, informal – or both?


There is no doubt that many poor people handle a vast amount of financial transactions in their everyday lives. They borrow and lend from and to friends, extended familiy and informal lenders.
Thus financial services are there, with or without the formal microfinance institutions. The question is: Which difference do the informal institutions or mechanisms make?

Views differ. Some, like Michael Schreiver, a researcher from the US, believe that microfinance can learn a lot from the information sector. Others, like Ishengoma & Kappel form the German GIGA, believe that both sectors matter in their own way while Diana Farrel from McKinsey believe informal enterprise is mostly bad for growth.


Everybody wants commercialization – but do the poor?


Looking at the global maketplace for microfinance ideas, commecialization is one of the themes that gets a lot of attention

Commercialization is when MFIs become a part of the global market for finance. The MFIs become regulated commercial financial institutions, and commercial, often global, banks provide finance to the MFIs. There is no doubt that this trend is growing. A recent report, A Billion to Gain, report on the activities by the some of the major commercial players. A frontrunner is Citibank Group, who has a London-based office doing only microfinance. And as the office director, Robert Amindale, said at the front page of the Wall Street Journal yesterday, “I may have the smallest business (within Citigroup) but I have the largest potential client group in the world.”

But is commercialization good for the poor? The dilemma obviously is that scaling up microfinance is difficult without access to commercially based credit, but at the same time microfinance institutions who concentrate on profit might loose the social goals which had them started in the first place. Whereas SKS microfinance in India seems to be an exeption to the rule, NYU associate professor Jonanthan Morduch, in his “The Microfinance Promise” from 1999, found that there seems to be a tradeoff between profits and outreach.