Financial services for microenterprises: Principles and institutions

This article argues for the use of a financial systems approach in the provision of financial services to the poor. The experience of the last decade has produced a successful technology for credit delivery that utilizes sound financial principles as its basis, that is: understanding the needs of the client; increasing efficiency by cutting administrative costs; and using various techniques to motivate repayment. Savings receives equal emphasis as a financial service, and several principles for its provision are discussed. The institutional dimensions behind this approach focus on the need to achieve self-sufficiency, which the article frames as a four-stage process. Finally, the article outlines various factors related to creating financial institutions that reach the poor and the policy implications that these suggest.