They have no collateral to pledge, no records to demonstrate a steady cash flow and they may not be sufficiently literate to complete loan paperwork. They operate on the margins of the financial mainstream. Until recently, nobody, in fact, would lend to them. Microfinance institutions, as these innovators are now called, have prospered in some of the poorest countries of Africa, Latin America, and Asia. Despite wide differences in the socio-economic and cultural conditions in which these institutions operate, they continue to demonstrate strikingly similar results.
Clients borrow, invest in their activities, repay their loans, and borrow again.
The average repayment rate is about 98 percent. Estimates are that this growing community of microfinance institutions are reaching over 10 million people with credit and savings services. There is a wide consensus among microfinance practitioners that the main constraint is not capital but rather the lack of institutional and human capacity to deliver services. Investing in and supporting start-ups is an important and effective way to build this capacity. This guide has been designed to help these new efforts reach their potential.