Principles of Microfinance, Microfinance means

 

  1. The poor need a variety of financial services: The Bank will support demand-driven microfinance interventions that develop and provide financial services.

 

  1. Microfinance is a powerful instrument against poverty: The Bank will ensure that its operations support initiatives that increase the access of people in RMCs who are presently excluded from accessing quality financial services.

 

  1. Microfinance means building financial systems that serve the poor: The Bank will support its RMCs to build such systems.

 

  1. Financial sustainability is necessary to reach significant numbers of poor people: The Bank will support initiatives that help suitable intermediaries achieve financial self-sufficiency.

 

  1. Microfinance is about building permanent local financial institutions: Dependence on concessional funding from such agencies as the Bank will only be temporary and diminish over time. The support of microfinance by the Bank will be contingent on intermediaries that are progressing toward, if they have not already attained, financial self-sufficiency.

 

  1. Microcredit is not the only answer: In supporting microfinance in it’s the RMCs, the Bank will consistently establish that any resources applied to target groups and identified as credit will be extended through a viable institutional intermediary with a clear means of repayment at market rates of interest.

 

  1. Interest rate ceilings debilitate the ability of all, but especially the poor, to access financial services: The Bank will support the ability of all RMC financial intermediaries to charge market rates of interest on loans. The Bank will further support the elimination of interest rate ceilings and the creation of more operational efficiencies to reduce MFI costs, thereby allowing them to reduce the rates of interest charged on loans.

 

  1. Governments are to act as enablers, not as direct providers of financial services: The Bank will support RMC governments in defining the elements of the enabling environment necessary to mainstream microfinance into the formal financial sector. At the same time, the Bank will discourage RMC governments from directly funding people targeted by MFIs.

 

  1. Funding agencies should complement, not compete with, private-sector capital: The Bank will provide selective support for initiatives with the objective of building inclusive financial systems. The Bank will, however, require a defined exit strategy at the outset of such support.

 

  1. The absence of institutional and human resource capacity is the key constraint: The Bank will support building the institutional capacity of financial intermediaries to provide financial services in demand among people who do not have access to formal financial services.

 

  1. Transparency in financial and outreach matters is important: Bank support to microfinance in the

RMCs will help ensure transparency at all levels and by all institutions.

Author: Kumar

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