Report card

Written by The Financial Express | Updated: Nov 1 2009, 02:40am hrs
This paper* describes important trade-offs that microfinance practitioners, donors and regulators navigate

We start from the observation that commercial banks were initially deterred from entering the microfinance niche by the small scale of the transactions that define it, but that the commercialisation of microfinance has started to change that mindset. A growing number of commercial banks are downscaling their operations, opening up services to poorer segments of the population, and competition is emerging as a result. Increased competition could change the industry in a number of ways, some for the better and others less favourably. We again look at MIX data, in search of evidence on where the balance between these competing effects rests. If microfinance institutions facing greater competition from commercial banks attempt to compensate by shifting their loan portfolios away from segments of the population that are perceived as being more costly to servethat is, the relatively poor and womencompetition may hinder outreach.

*Robert Cull, Asli Demirg-Kunt and Jonathan Morduch, Microfinance Tradeoffs Regulation, Competition, and Financing, Policy Research Working Paper 5086, World Bank, October 2009