Microfinance Banks: Feasibility and Performance Compared to Traditional Banking

Abstract

Financial exclusion situations persist around the world, despite the financialization processes of the economy in recent years, and are widespread in low- and middle-income countries, affecting their development potential. Microfinance has thus been a response that combines proximity to low-income clients with adapted, socially oriented and efficient practices. The growth of the sector has been externally supported by development agencies, multilateral institutions and other international organizations, which have deemed it to be a novel financial and development instrument, but doubts still remain regarding its sustainability. The article studies the period 2006-2013 using a broad sample of traditional and microfinance banks, showing the feasibility of the sector in terms of profitability, solvency and risk, and comparing this model with the traditional banking one in those contexts.

Keywords: Financial Institutions, Microfinance Institutions, Microcredit

JEL Classification: F30, G21, O16