Law Commons^™

Helping Microfinance Become Commercially Sustainable, Steven L. Schwarcz

Faculty Scholarship

Microfinance primarily refers to the making of small loans to low-income individuals and the poor, to enable them to start or expand small businesses. Currently, most microfinance loans are made through nonprofit microfinance institutions (MFIs) that receive donor money. However, donor-funded loans can account for only a small portion of the need. Microfinance analysts estimate, for example, that total market potential is $300 billion, of which only ten percent is currently being captured. Increasingly, the shortfall in funding is being met by commercial banks. But commercial-bank intermediation is expensive, with a global average effective interest rate (on commercial microfinance loans) …