Commercial Banks and Microfinance: Evolving Models of Success

Topic :

This article highlights recent research about the different ways in which commercial banks have successfully entered the microfinance market. It is meant to provide a conceptual starting point for those commercial banks considering entering this new and vast market. In order to illustrate its points, the article provides many examples of banks that are currently engaging the microfinance market.

It begins by dividing the current approaches into direct and indirect categories. The direct category provides microfinance services through internal service units, specialized financial institutions, or microfinance service companies. The indirect category enters the market by outsourcing retail operations, providing commercial loans to MFIs, or providing infrastructure and systems.

The articles concludes by advising potential market entrants to carefully evaluate the various entry points described above and conduct extensive market research as they would with any other business venture. Board and management vision and commitment are necessary but not sufficient for any venture into this new field. Also, entry should be seen as a long term business proposition—no bank should expect to make a “quick buck” from microfinance. However, with sound planning and market information, banks can successfully enter this extensive new arena.

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