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Microfinance - Small amounts, huge impact

The aim of promoting microfinance is to offer cost-effective, nationwide financial services geared specifically to the needs of poor sections of the population and micro-businesses.

Key facts

• Poor households use financial services to boost their income, accumulate capital and hedge against emergencies.
• The potential of microfinance can be fully exploited, if it is integrated in a national financial system.
• More than half of all microfinance clients are women.
• The poor need a range of financial services besides just credit. The most important services are secure, flexible savings options as well as insurance and cash transfer services.
• Microfinance institutions must be economically viable, if they want to reach the poor sustainably and achieve a broad-based impact.
• Micro credits are not always the best development instrument, especially if aimed at extremely impoverished and weakened members of the population with no means of repayment.

When given the opportunity, poor sections of the population will eagerly save even the tiniest amounts. In poorer countries, the savings volume is often many times higher than the lending volume. Moreover, loans are usually repaid reliably. So it is all the more surprising that the overwhelming majority of the population in virtually all developing countries still have no access to adequate financial services.

By developing microfinance structures (specialised microfinance institutions, alliances between banks and non-governmental or self-help organisations, commercial banks with specific service structures for poor clients), even poor sections of the population can be integrated in the economic cycle. As a fixed component of the financial sector, microfinance is aimed at economic actors who have no regular access to appropriate financial services via formal financial institutions. The aim is to offer a broad, differentiated range of products and services for small and micro amounts of cash, including loans, savings services, insurances and cashless transactions.

Secure savings options are particularly important for households with small, irregular incomes and for women, in order to hedge against emergencies or set aside money for their children's education or other long-term investments. In addition to savings, access to credit facilities their participation in economic life. It enables them to capitalise on business opportunities and expand existing commercial activities. Access to financial services can pave the way to a self-determined life of economic self-sufficiency. This applies particularly to poor women who account for more than half of all microfinance clients around the world.

Current challenges
Facilitating access to secure financial services for poor sections of the population is the key challenge in the field of microfinance over the next few years. In addition to expanding financial and management know-how for clients and providers, the focus is on building and expanding sales channels (retail capacity) and creating favourable framework conditions. There is also a need to enhance efficiency and reduce costs in order to offer services cost-effectively and hence sustainably. Only around 2% of the more than 10,000 institutions involved in microfinance currently operate profitably.

Another challenge is to develop new products that meet the variety of needs of poor sections of the population. A varied, secure range of savings products, long-term credit, micro-insurances or risk capital are noteworthy in this context. Investments in new partnerships in order to attract commercial, socially responsible investors are as important as ways of stepping up collaboration with partners, such as (local) commercial banks, insurance companies, leasing agencies or venture capitalists.

The SDC focus

SDC is committed to creating a financial sector that takes account of the needs of all sections of the population, including poor households, farmers and micro businesses. It regards the development of financial services as an entrepreneurial challenge and aims to create cost-effective, sustainable services geared to clients' needs and able to respond flexibly to changing market conditions.

  • SDC promotes the education and autonomous organisation of poor client groups of financial institutions.
  • SDC supports a wide range of financial institutions that offer services for poor client groups. Depending on the context, these may be formal financial institutions, such as banks that offer microfinance products in direct or indirect collaboration with self-help organisations, specialised institutions, such as co-operative societies, non-governmental organisations, village savings funds, post office banks or informal financial institutions, such as savings and loan groups or other civil organisations, etc.
  • SDC supports the integration of microfinance into the financial sector by promoting standards and transparency for local service mechanisms, such as trade associations, educational institutions etc., local refinancing and partnerships with socially responsible investors (SRI), and an appropriate regulatory and supervisory framework.

Specific themes in this area:

 Rural finance
Despite the important role they play in economic development, rural regions suffer from a massive deficit in terms of financial services.

 Small enterprise finance
Small enterprises are of major importance for broad-based development and employment. Yet often such enterprises have no access to services tailored to their needs.

 Micro-insurance
People in developing countries and transition countries tend to be exposed to a wide range of risks, such as disease, harvest failure, loss of income and theft, yet they have virtually no formal insurance protection.

Additional Information and Documents

Documents
  • CGAP Microfinance Consensus Guidelines
    Download (PDF, 1265 KB) :  [en]   [fr]   [es]  
  • Mobilizing Savings
    Key issues and good practices in savings promotion
    Download (PDF, 1217 KB) :  [en]   [fr]   [es]  
  • Policy for Financial Sector Development
    Update 2007
    Download (PDF, 1436 KB) :  [en]   [fr]   [es]  
  • Mikrofinanzen - Spar- und Kreditgenossenschaften machen für arme Landbewohner einen Unterschied
    Latin Brief Juni 2009
    Download (PDF, 107 KB) :  [de]  
  • Retrospective Annual development cooperation conference 2005
    Small money - big impact: banking with the poor
    Download (PDF, 536 KB) :  [de]   [en]   [fr]   [es]  
  • Added Value
    Contributions to gender equitable economic development
    Download (PDF, 2984 KB) :  [de]   [en]   [fr]   [es]  
    Order
  • Wie kann man Kleinstkredite für Frauen nützlicher machen: Hintergrundinfos und Engagement der DEZA
    Download (PDF, 43 KB) :  [de]  
  • Swiss Microfinance Investments
    Download (PDF, 2671 KB) :  [en]  

External Links
Articles and Press releases