Microfinance Meets the Market

40 Pages Posted: 20 Apr 2016

See all articles by Robert Cull

Robert Cull

World Bank - Development Research Group (DECRG)

Asli Demirgüç-Kunt

World Bank

Jonathan Morduch

New York University (NYU) - Robert F. Wagner Graduate School of Public Service; New York University (NYU) - Department of Economics

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Date Written: May 1, 2008

Abstract

Microfinance institutions have proved the possibility of providing reliable banking services to poor customers. Their second aim is to do so in a commercially-viable way. This paper analyzes the tensions and opportunities of microfinance as it embraces the market, drawing on a data set that includes 346 of the world's leading microfinance institutions and covers nearly 18 million active borrowers. The data show remarkable successes in maintaining high rates of loan repayment, but the data also suggest that profit-maximizing investors would have limited interest in most of the institutions that are focusing on the poorest customers and women. Those institutions, as a group, charge their customers the highest fees in the sample but also face particularly high transaction costs, in part due to small transaction sizes. Innovations to overcome the well-known problems of asymmetric information in financial markets were a triumph, but further innovation is needed to overcome the challenges of high costs.

Keywords: Access to Finance, Debt Markets, Banks & Banking Reform, Emerging Markets

Suggested Citation

Cull, Robert and Demirgüç-Kunt, Asli and Morduch, Jonathan, Microfinance Meets the Market (May 1, 2008). World Bank Policy Research Working Paper No. 4630, Available at SSRN: https://ssrn.com/abstract=1149133

Robert Cull (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

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HOME PAGE: http://econ.worldbank.org/staff/rcull

Asli Demirgüç-Kunt

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Jonathan Morduch

New York University (NYU) - Robert F. Wagner Graduate School of Public Service ( email )

The Puck Building
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New York, NY 10012
United States
(212) 998-7515 (Phone)

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States

HOME PAGE: http://www.nyu.edu/projects/morduch

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