Financial Sector Policy and the Poor: Selected Findings and Issues

Financial Sector Policy and the Poor: Selected Findings and Issues

by Patrick Honohan, Patrick Hononhan


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Financial Sector Policy and the Poor: Selected Findings and Issues by Patrick Honohan, Patrick Hononhan

Financial Sector Policy and the Poor presents new empirical evidence on how financial sector policy can help the poor. It is often thought that promotion of specialized microfinance institutions is the best or only way forward. However, a strong mainstream financial system is also pro-poor - perhaps even more so. While mainstream financial depth is measurably associated with lower poverty, for microfinance this is not yet so. The roles played by microfinance and mainstream finance in tackling poverty should be regarded as complementary and overlapping rather than as competing alternatives. The essential similarities between the two will become more evident as individual microfinance firms, or associations of firms, grow to the scale needed for sustainability.

Policy design that recognizes the need for larger and stronger microfinance institutions poses no threat to the health of mainstream finance. Such a policy would not impose low interest rate ceilings; nevertheless, the goal of protecting the vulnerable from credit market abuses and prejudice should not be neglected in an effective package of policies favorable to the growth of both micro and mainstream finance.

World Bank Working Papers are available individually or by subscription, both in print and online.

Product Details

ISBN-13: 9780821359679
Publisher: World Bank Publications
Publication date: 10/01/2004
Series: World Bank Working Papers , #43
Pages: 86
Product dimensions: 6.84(w) x 10.00(h) x 0.21(d)

Table of Contents

2Microfinance Penetration3
Non-uniform Development of Microfinance Across Countries3
Microfinance is Too Small to Threaten the Mainstream7
3Is Microfinance Different to the Mainstream?11
Differences Related to Scale, Style, and Subsidy11
What Prevents Microfinance from Expanding to Full Potential?17
Microfinance Impact: Alleviation More than Escape23
More Developed Mainstream Financial Systems are Associated with Less Poverty30
Poverty Gap Data Highlights the Need for Deeper Mainstream Finance in Africa32
5Protecting the Vulnerable35
Predatory Lending-The Liberal's Usury35
Combating Prejudice and Discrimination39
6Concluding Remarks43
AMicrofinance Penetration45
BMFI Scale and Profitability53
CPoverty Rates and Financial Depth61
DPredatory Lending69
List of Tables
1aMFI Penetration Rates-Top Countries4
1bBorrowing Clients at "Alternative Financial Institutions"5
A1Explaining MFI Penetration (Total Population)48
A2Explaining MFI Penetration (Poor Population)51
B1Sustainability, Size, and Focus55
B2Return on Assets, Size, and Focus58
C1Poverty and Financial Depth62
C2Poverty and Financial Depth (Alternative Samples)64
C3Poverty and Financial Depth (Additional Variables)65
List of Figures
1aMFI Penetration5
1bCredit Penetration by "Alternative Financial Institutions"6
2MFI Penetration of Total and Poor Population7
3Penetration by Region (Clients)8
4Penetration by Region (Assets)9
5MFI Penetration and the Poverty Headcount10
6National Poverty Gaps Plotted Against the Size of Mainstream Finance33

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