Commercial Banks in Microfinance: New Actors in the Microfinance World

Little has been written about the role of commercial banks in microfinance. The reason is simple: there has been little to tell because commercial banks have been so notably absent from this field. In their absence, a large number of nongovernment organizations (NGOs) and other specialized institutions have created financial technologies that serve increasing numbers of the poor and sustain loan repayment rates that are not only competitive with traditional commercial banks but also offer profits without subsidies.

Now commercial banks in developing countries have begun to see microfinance not only as a valuable public relations tool but a profitable venture and are beginning to examine the micro-finance market. At the same time, some NGOs have transformed themselves into regulated banks. Today’s microfinance landscape is being shaped by regulated microfinance banks created from these two different backgrounds, each offering their own distinct strengths and weaknesses.

In November 1996, the U.S. Agency for International Development (USAID) sponsored a conference to examine the expansion of banking services to microenterprises in the developing world. The first event of its kind, the conference brought together bankers from 17 regulated financial entities in 16 developing countries to capture and share experiences, learn about each other’s practices, and discuss obstacles. There were large, multi-service and state-owned banks and small, specialized banks and finance companies.