|
|
Like this article? PLEASE +1 it! |
|
Globalization of Microfinance Markets: an Overview and Some Conditions for Success by Dr. Jairo Morales-Nieto
|
| Guest post by: David Satterthwaite |
Article Overview: Written by Dr. Jairo Morales-Nieto, Executive Director of local economic development consultants InterAfrica Corporate Ltd, this 10-page discussion on the necessary steps to transition from local to global microfinance markets was published in January 2008.
![]() |
Free Download - Ugandan Government to Set up Laws for Regulating its Microfinance Sector By David Satterthwaite |
Globalization of Microfinance Markets: an Overview and Some Conditions for Success by Dr. Jairo Morales-Nieto
Written by Dr. Jairo Morales-Nieto, Executive Director of local economic development consultants InterAfrica Corporate Ltd, this 10-page discussion on the necessary steps to transition from local to global microfinance markets was published in January 2008. Dr. Morales-Nieto asserts that rigorous filters and conditions must be observed by all players for microfinance to successfully enter into global financial markets. The full-version of the paper is available here.The paper defines globalization of microfinance markets as a “recent international financial trend towards the integration of microfinance flows and institutions with global capital and financial flows and markets, in which private investment funds are a catalytic force”. Furthermore, the rise of microfinance is attributed not only to the increase in micro borrowers and lenders, but also to global, financial markets’ desire for innovative ventures, less risky clients, and higher returns.
While recognizing the benefits of microfinance’s entry into global markets, the paper strongly cautions against the dangers of an “indiscriminate globalization”. This trend will introduce different players and their respective motivations. Compared to development micro lenders who have concentrated on generating wealth for the poor, conventional big banks and investment funds have focused on creating profits. Thus big banks and financial institutions must not solely make microcredit lenders and borrowers new customers, but rather scale up microfinance services while adhering to its best practices.
Dr. Morales-Nieto lists four strategic steps which can help ensure a successful transition to global markets. The first step is for new players to have a thorough understanding of how microfinance works. The microfinance culture and its mindset regarding micro borrowers must pervade the conventional financial and banking environment. While Dr. Morales-Nieto states this as the first fundamental step, he does not provide any specifics on how to achieve this goal.
The second step is to create a strong institution framework for microfinance at a country level. This includes establishing a legal, regulatory, and policy environment conducive to microfinance and adjusting lending technologies to the needs of micro borrowers. Finally, small businesses and the non-bank microfinance intermediaries must be included into the new institutional frameworks with small entrepreneurs and their associations being active policy players.
The third step involves making microfinance a microeconomic policy issue. Currently it is difficult to evaluate the impact of microfinance on global economic aggregates. Basic questions to answer are to what extent does microfinance increase economic growth, income, or employment. Thus, a crucial objective will be to determine how microfinance can contribute to microeconomic policy goals. Finally, it will be governments and academics’ responsibility to work microfinance into policy framework
The final step, according to this doctor of economic science, is to incorporate academics into the process. Dr. Morales-Nieto states that microfinance revolution is not feasible without a solid economic theory behind it. In addition, he notes the wealth of potential studies and analysis. For instance, in economic theory, microfinance can be a tool to correct market failures and facilitate capital movements from rich to poor countries. Regarding financial theory, risk is particularly interesting as classic risk theory seems to contradict lending to the poor without collateral. Furthermore, the classic theory of investment decisions is sensitive to the level of interest rates whereas poor borrowers place an emphasis on the rates or return. Finally, in making microfinance an issue of economics, it can add to further understanding of how microfinance works.
As a self-described policy advisor, Dr. Morales Nieto believes that the above four steps will help microfinance smoothly transition into global markets. Ultimately, this globalization can enable microfinance to move beyond a mere financial tool or anti-poverty strategy and transform it into a key focus of political economy.
Dr. Jairo Morales Nieto received his Doctor of Economic Science at the University of Muenster in Germany. He also served as the Chief Technical Adviser of the Small Enterprise and Human Development Programme (SEHD) from 2002 until the end of the program in March 2004. The SEHD Programme was responsible for implementing a local economic and human development strategy in South Africa funded by the Italian Government through the United Nations Development Program. Dr. Morales-Nieto has also published several articles in AfricaGrowth Agenda, an independent magazine covering development issues in Africa, as well as a paper entitled “Implementation of a GIS at the Local Level in Central America”. Finally, Dr. Morales-Nieto was also the senior registration and development expert with the office of the UN High Commissioner for Refugees in Islamabad.
|
About the Author: David Satterthwaite RSS for David's articles - Visit David's website David brings 10 years of experience in microfinance management, social entrepreneurship, non-profit management/fund-raising and microfinance investment research. David is the Chairman and President of Prisma Microfinance, Inc., a retail “microbank” operating in Central America. He is also Chief Editor of MicroCapital.org, a news and information service for the microfinance community and its investors. Each month, MicroCapital.org publishes the MicroCapital Monitor, the leading industry newspaper. David writes and speaks frequently on microfinance. He has been a quest speaker at many events, including: Microcredit Summit 5+: Panel on Private Investment, Milken Institute Global Conference, United Nations Year of Microcredit Symposium for Wall Street, Chicago Conference on Microfinance, Harvard Social Enterprise Conference, Dartmouth’s Business Sustainability Conference, Wharton’s Conference on Social Entrepreneurship, Stanford’s Social Enterprise Club, Columbia’s Social Enterprise Program and the Net Impact Annual Conference. Through his work with Prisma and MicroCapital, he has been featured or quoted in The Wall Street Journal, the Boston Globe, “All Things Considered,” Reuters and SocialFunds.com. David has been recognized with the Compaq Computer Corporation Leadership Award, the City Year Inspiring Leader Award and the National Social Venture Business Plan Competition award for Best Social Impact Analysis. David has supported many non-profit and for-profit social enterprises in different capacities, including Access Technology Learning Center, Agora Partnerships, Bridges to Business, City Year, Fonkoze, Kiva and National Social Venture Competition. David holds a B.A. with Honors in Political Science from Haverford College. Click here to visit David's website Old Mutual OM Supports Expansion of Womens Development Bank WDB Microfinance into KwaZuluNatal South Africa with USD 710000 KfW Entwicklungsbank Development Arm of German Bank Lends $147m to Moroccan Microfinance Institution MFI Fondation pour le Developpement Local et le Partenariat FONDEP PAPER WRAPUP Beware of Bad Microcredit by Steve Beck and Tim Ogden Central Bank of Nigeria CBN Approves Conversion of Community Bank into Microfinance Institution MFI International Finance Corporation IFC and Blue Financial Services Group to Integrate HIVAIDS Prevention with Microfinance |
Related Forum Posts
Share this article with your friends. Fund someone's dream.
Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.
Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!
Track Your Time for Increased Productivity
The Pure FUN of Learning & Using NLP
When Living the Dream isn't enough!
Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.



