Fundamentals of microfinancing

The managers at the MFIs are careful to ensure the borrower success and informs about the risks involved, that makes in general the borrower performing better. This leads often to earned dignity and lasting self-confidence associated with responsible loan repayment.

To have a sustainable growing economy it takes high entrepreneurship and energy in order to develop the world and fight poverty. Independet and responsible entrepreneurs are valuable resources which can take advantage of the microfinance industry. They will not take big risks and must be supported by predictable financing.

Normal bankoperations suits better to large transactions which is more profitable, the traditional operating philosophy is to invest in facilities and they have costly operating structures. The traditional financing industry must either change themselves or stay out of the microfinance business. A new generation of banking institutions is growing in a market of very small transactions and less affluent clients. With lowered transactions costs through institutional specialization and innovation in delivery systems, they will be able to operate profitable in this market serving the poor with financial services.

The poor entrepreneurs are the future representing the population who will become successful in the nearby future. They have the same will and skills as the toughest business operators. The are economical, don’t take big risks and repay debts as scheduled to maintain possibility borrowing money in the future.

This require a totally new ground breaking banking system with scale economics. Modifying the standard system will simply not be enough, the poor people will continue stay outside their country´s economy. Building up microfinance institutions serving poor people is a relatively costeffective use of subsidies for economic development compared to other supporting strategies for welfare.

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