To most, microfinance means providing very poor
families with very small loans (microcredit) to help them engage in productive
activities or grow their tiny businesses. Over time, microfinance has come to
include a broader range of services (credit, savings, insurance, etc.) as we
have come to realize that the poor and the very poor who lack access to
traditional formal financial institutions require a variety of financial
products.
Microcredit came to prominence in the 1980s, although
early experiments date back 30 years in Bangladesh , Brazil and a few other
countries. The important difference of microcredit was that it avoided the
pitfalls of an earlier generation of targeted development lending, by insisting
on repayment, by charging interest rates that could cover the costs of credit
delivery, and by focusing on client groups whose alternative source of credit
was the informal sector. Emphasis shifted from rapid disbursement of subsidized
loans to prop up targeted sectors towards the building up of local, sustainable
institutions to serve the poor. Microcredit has largely been a private
(non-profit) sector initiative that avoided becoming overtly political, and as
a consequence, has outperformed virtually all other forms of development
lending.
Traditionally, microfinance was focused on providing
a very standardized credit product. The poor, just like anyone else, need a
diverse range of financial instruments to be able to build assets, stabilize
consumption and protect themselves against risks. Thus, we see a broadening of
the concept of microfinance--our current challenge is to find efficient and
reliable ways of providing a richer menu of microfinance products.