PIIN Insights: Microfinance in the Developed World
MFI’s in developed countries face significant challenges. Compared to developing countries, they face fierce competition from the established financial industry. The size of loans offered is greater (although loan caps exist) and group-lending schemes, relying on social cohesion as a method of encouraging repayment, are less successful. Thanks to differing social structures and formal welfare institutions, self-employment is relatively less common, resulting in a smaller market demand for microloans. MFI’s face greater administrative costs than traditional financial institutions; they must operate with either a large client base or relatively high rates. However, tailored or adjusted models of microfinance may still address issues of financial inclusion in the developed world. This report investigates the dynamics of microfinance in the developed world further.