New partnerships for sustainability and outreach

Abstract

Microfinance has developed steadily and rapidly over the last 20 years. Its antecedents include co-operative and community endeavours in the 19th century in Germany and elsewhere in Europe. Today these institutions and their offspring around the world continue to provide a very large volume of credit and other financial services to households and tiny businesses. These early inspirations are reflected in the objectives of microfinance, which include the use of credit and savings to create better lives for the poor and others of modest means, and a certain style of leadership and concern by activists and social entrepreneurs. In other respects, comparison with this past is at best indirect. Microfinance became possible on a broad scale through a convergence of events. The most important was the liberalisation of financial markets in the 1980s and beyond (Shaw 1973, McKinnon 1973, WDR 1989). Of overwhelming importance, liberalisation made it possible to set interest at rates that cover the costs of dealing in finance at the frontier, providing a window for experimentation in the commercialisation that could ensure sustainability. Liberalisation also facilitated the emergence of new types of formal financial institutions dedicated to the bottom end of the market. The burdens of co-operatives that failed to operate on a commercial basis and the losses incurred by dysfunctional state-owned development or promotional banks in the great majority of countries around the world no longer had to be shouldered by those who wanted to provide financial services to people of modest means (Schmidt, Kropp 1987). Alternatives emerged. Another positive factor was a new emphasis on helping the poor, especially the rural poor, most notably expressed by a change in policy at the World Bank in 1973. A third feature was a focus on women that energised many microfinance institutions and their supporters. Finally, the participation of bilateral and multilateral development co-operation and technical co-operation agencies, formed from the mid-1940s onward, became more effective and refined over time. © 2009 Springer-Verlag Berlin Heidelberg.