Files
Abstract
In a context of liberalized financial systems, microfinance allows millions of
households, usually excluded from classical financial services, to begin or reinforce their
own activities and become microentrepreneurs. Yet, in spite of the success of numerous
microfinance institutions (MFI), many difficulties remain which must be urgently
resolved in view of their ambitious objectives. First, a large number of the rural
households still lack access to financial services. Second, most of the existing MFI are
not yet financially sustainable. Finally, while funds from governments and donors are
rapidly increasing, financial institutions still need solid foundations to avoid management
failures. These issues raise questions of the role of the state to promote MFI including (1)
which state-owned institutions may be necessary? (2) which level and type of
subsidization of the financial institutions can be accepted? (3) what can be the choice for
the state between alternative investments in financial institutions or complementary
services? (4) what are the necessary conditions for creating a favorable environment?
This paper presents the evolution of views on the role of the state in the financial
system including theoretical and empirical points of view from the interventionist period
of the 1960s and 1970s to the current period of liberalization. Based on country case
studies illustrating the divergent role of the state in the development of the rural financial
system, the paper reviews the respective role of the state, the NGO and the private
commercial banks in increasing their outreach and in adopting microfinance innovations.
It also analyzes different issues regarding regulation of MFI. The paper concludes with a discussion of the necessary roles of the state to
promote MFI. The role of the state encompasses insuring a minimum banking structure in
the rural areas, subsidizing microfinance start-up capital and innovations, and investing in
complementary services such as infrastructure, health, and education. The state must also
develop a clear and flexible regulatory framework for MFI with the means to enforce the
rules for the supervisory bodies. The paper also concludes that efficient governance is
more of a determinant than the distinction of ownership by the private or the public sector
for the performances of the MFI.