Columbia International Affairs Online: Working Papers

CIAO DATE: 11/2012

Global microscope on the microfinance business environment 2012

October 2012

Economist Intelligence Unit


The last few years have presented a series of challenges and learning opportunities for the microfi nance sector. During the last few decades the microfinance industry experienced substantial growth, but eventually this resulted in market saturation, a rise of non-performing loans and multiple lending across a few key markets. The global financial crisis then increased the focus on risk management, corporate governance and regulatory capacity. Most recently, the Andhra Pradesh microfi nance credit crisis that unfolded in India has raised serious questions about the viability of microfinance as a valid development modality. The response to the Andhra Pradesh crisis has centred on a renewed effort from the microfi nance community to address the need for progress on responsible fi nance measures. The responsible finance movement has further refined client protection principles, dispute resolution and transparency, while donor-funded projects, industry bodies, networks and individual institutions are embracing these concepts. Although it may take time to design and improve functional systems, embed them in project and organisational designs, and fully implement them, it is an important step forward for the industry and a sign of its growing maturity. Nevertheless, much work remains to be done for microfinance to reach its potential in providing access to financial services to the unbanked, reducing poverty and improving livelihoods.