Developing countries around the world struggle with supplying resources
to the poor. Though social assistance programmes are one option, the
challenge of creating dependence amongst the intended beneficiaries
always arises. Hence the draw of microfinance, an institution with
origins in Europe in the 1800s as a ‘cooperative movement’ involving
urban wage earners and small farmers, that has been adopted in Latin
America and has grown at a two-digit rate for the past decade. This
Guide reviews the concept of microfinance as developed in Latin America,
underscoring its unique features. We present an overview of its recent
evolution and the current state of the market. The different types of
institutions offering microcredit in the region are also presented and
analysed. Next, regulations and practices of Latin American institutions
are presented, as they are key to understanding microcredit in a context
where neither guarantees nor documentation is mandatory. Finally, the
Guide reviews technologies and strategies that microfinance institutions
use to increase profits and presents what may be the next frontier for
the industry, integrating services to support company development
combined with microfinance. The Guide concludes with lessons that may be
relevant for other contexts, as well as highlighting key publications
and organisations related to microfinance in the region.
Specific policies and requirements vary from country to country, but a
set of good regulatory practices in Latin America includes: minimum
capital requirements; strict standards for related-party lending;
increased access for MFIs to engage in more complex or risky operations
subject to fulfilling more demanding requirements; ensuring adequate
scale for efficiency; and promoting competition.
Strategies implemented in Latin America show that capital investments in
technology are essential in order to reduce risks, but they need to be
matched with proper organisational innovations that involve personnel
management. Technological devices reduce costs, but it is loan officers
who need to be capable of managing issues related to microcredit with
the clients. Communication skills and mutual trust are essential where
no guarantees exist.
In spite of its importance and widespread implementation, evidence on
microfinance’s effectiveness in Latin America is limited, signalling a
need for more and better research.
Jaramillo, M. ELLA Guide: Guide to Microfinance in Latin America. ELLA, Practical Action Consulting, Lima, Peru (2013) 13 pp.