A borrower in Sierra Leone who got financing through Kiva Field partner BRAC.
Tilman Ehrbeck, CEO of Consultative Group to Assist the Poor (“CGAP”), recently published a short piece on the evolution of the microfinance industry over the last 15 years. He describes the innovation social entrepreneurs demonstrated to spur microfinance’s growth in the 1990s, hurdles the industry has faced over the years and how it responded, and the conscious effort made by the microfinance community to re-prioritize a client-centric approach.
His article can be found in its entirety here. Below is a timeline summarizing Ehrbeck’s main points.
Mid 1990s: The use of social collateral throughout the industry and its success allows for greater numbers of those living in poverty to have access to credit. Low-income clients, who had previously not been economically viable to serve, are now able to get a loan without have to put up physical collateral.
Late 1990s: The industry focuses on scaling up, developing best practices and creating a network of support.
Early 2000s: Microfinance institutions realize the need to provide other services in addition to micro-credit, such as savings accounts and insurance. As the industry continues to grow, the hurdle of providing financial services to smaller clients, who are relatively costlier to serve per transaction than larger clients, causes concern. Mobile technology is adapted to address this problem and lower transaction costs, especially for clients in remote regions.
Late 2000s: Market saturation in rapid-growth markets leads to over-indebtedness. The microfinance community realizes the need to promote a client-focused approach. Client protection and financial literacy become priorities. “Financial inclusion” is solidified as a basic human right and an industry-wide goal.
Microfinance continues to shift and evolve, as it should. In order to maintain healthy growth, all of its actors must regularly evaluate its effectiveness in not only being sustainable as a business model, but also in staying faithful to microfinance's original mission: helping the poor.
We value being in tune with the latest news on microfinance and poverty alleviation. Kiva Scholar is designed to share research and developments in the field and open the conversation up to you! Send questions to email@example.com.
Photo by Kiva Fellow Tejal Desai.