What is the future of microfinance?

The microfinance sector is changing fast: the supply continues to grow with $81.5 billion in loans worldwide and a 5% growth in the number of customers in 2012. Services, actors, regulation and technologic innovations are changing for microfinance tomorrow remains an alternative to banking services for more than 2.5 billion people still excluded from the traditional banking system globally. The banking sector, the increasing role of new actors, the expansion of services offered to clients, but also the importance of control in a maturing industry will be the big topics of microfinance in the next decade.

Financial inclusion in 10 years?

The sector of inclusive finance will continue to expand beyond traditional microfinance institutions.
New actors such as mobile operators and distribution networks will increase the offers of financial services and products at lower cost to reach the poorest and most isolated populations.
The online banks and the new technologies will also market these large scale offers.
The regulations will be more focused on client protection than institutions, processes or products.
The financial inclusion will become a reality in most regions that are currently excluded, with the exception of a few very isolated locations.

Structural changes expected

Technological advances will cause major structural changes in the sector.
Digital finance and mobile banking allow already a larger number of people to access financial services and products.

Thanks to technological innovations, not only the contribution of financial services is more diversified - offering credit, insurance and savings products - but these new low-cost payment infrastructure also give other services and public facilities more accessible to the poor, such as water pumps or sunlamps.
This type of innovation will rise with the spread of mobile banking services in the developing countries.

Niche actors, such as small financial institutions and agent network managers, will emerge and try to get a place among the big banks and small customers.
Simple and easily marketable products will be needed because the banks will not be able to train their agents, scattered throughout the country, with specificities of complex products.

How to increase the impact of microfinance in poor areas?

  • 1.    Better understand the needs of the poor and study their preferences, their financial behavior.
  • 2.    Translate this knowledge into products that are better adapted to their individual needs and affordable. It is also necessary to ensure that the services available to the poor enable them to improve their living conditions.
  • 3.    Promote the protection of clients in institutions through a combination of insurance, savings, retirement products and develop commitment to customers to develop financial education.

The changes in the sector of microfinance will be carried by newcomers and organizations specifically targeting customers outside the microenterprise segment.
The arrival of these new actors will undoubtedly provide a broader and more diverse customer base, including the poor but also the less fortunate who are still financially excluded. These organizations work with tighter margins than most MFI , but should be able to manage it thanks to higher volumes.

This process will take some time, but by 2020, we will see some of these new financial actors pushing the MFI to become competitive or further specialize in the niche market of micro loans that they perfectly manage. The result will be a healthier, more diverse market, and especially more financial inclusion.

Tags : microfinance, microcredit, mobile banking, financial inclusion, MFI, micro loans, microfinance institution, future, Convergences, Baromètre de la Microfinance, MicroWorld.

Sources : Baromètre de la Microfinance 2014