Banks in the microfinance market

The increasing competition in financial sector led Commercial banks to become the new actors in the world of microfinance .This paper offers a new taxonomy for modern microfinance and discusses the definitions of ‘sustainability’ and ‘outreach’, which represent, respectively, the essential prerequisite for a microfinance banks that by definition are profit-oriented, and the “original” aim of microfinance. It also analyses the key variables and the operational and management choices (portfolio management, pricing policy, efficiency) that a commercial bank should consider in order to reconcile the aims of sustainability with those of outreach, so as to implement ‘ethically profitable’ microfinance programmes. The search for a balance between the sustainability objectives of microfinance institutions and the pursuit of social aims represents a big trade-off in microfinance. The analysis of the determining factors of sustainability and outreach has shown that there are operating and managerial policies which can bring together these apparently conflicting objectives. Traditional policies can be aided by more innovative solutions when microfinance operators form profitable collaborations with banks and other financial intermediaries.