MICROCAPITAL BRIEF: The Economist Intelligence Unit “Microscope” Study Discusses Challenges to The Rapidly Growing Microfinance Industry

A study from The Economist Intelligence Unit, publisher of The Economist magazine reports that microfinance is increasingly gaining global recognition as a viable business model, whereby technology in particular is allowing for growth in lending and other financial services for the world’s low-income microentrepreneurs. The report covers the microfinance sector in 54 countries comparing them across three categories: regulatory framework, institutional development and investment climate.

While it highlights microfinance institutions (MFIs) that have tapped into commercialization, allowing growth at a “breakneck speed,” it also points out that the industry suffers from issues perpetuated by this growth: irresponsible lending, frequent loan defaults that have led to violence against MFI staff and an increasing ratio of portfolios at risk (PAR). The report cites the need for a pause to create a holistic regulatory framework of checks and balances that should include strengthening management practices, promoting reporting through credit bureaus and regulating financial operations from within, but also following international standards and adhering to anti-terrorist money-laundering policies externally. Such reform, the report concludes, is needed to preserve the industry’s very own legitimacy [1].

By Diana Baide, Research Assistant

[1] The Economist. “Global microscope on the microfinance business environment 2010” by The Economist Intelligence Unit

http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=35379430

MicroCapital. “MICROCAPITAL BRIEF: Peru Remains on Top of ‘Global Microscope on the Microfinance Business Environment 2010’ Survey by the Economist Intelligence Unit” by Trevor Kwong, 10 October 2010

https://www.microcapital.org/microcapital-brief-peru-remains-on-top-of-global-microscope-on-the-microfinance-business-environment-2010-survey-by-the-economist-intelligence-unit/

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