Issue 4 Summer 008
Microfinance:
A new model for emerging economies
by Andy Agnew
Microfinance, underpinned by enabling technologies, is rapidly becoming a mass
market financial model. The use and presentation of data is providing transparency that
is a fundamental building block for growth of financial services in emerging economies.
Microfinance involves lending small sums to individuals TRANSPARENCY FIGHTS CORRUPTION AND
who are below the poverty line, usually in emerging IMPROvES PERFORMANCE
economies. These individuals would otherwise have no Corruption and inefficiency are key issues for any financial
access to mainstream financial services. Although often enterprise in developing economies. It is estimated that
associated with not-for-profit organisations, microfinance only 14%
1
of aid from the developed world makes its
is increasingly becoming an opportunity for investment way to its ultimate destination.
in emerging economies.
Transparency was recognised by the Consultative
It can be traced back to the Bangladesh famine of 1974 Group to Assist the Poorest (CGAP) as a key element
when Muhammad Yunus, a professor of economics in transforming microfinance from a movement into
at the University of Chittagong, visited the village of an industry. CGAP defines transparency as the free
Jorba. He discovered that $27 was the sum of money flow of publicly available, accurate, and comparable
collectively needed to buy bamboo to make the stools information.
the villagers sold to make a living.
The internet is the ideal medium for creating transparency
Yunus took the money from his own pocket and made cost effectively through websites such as the Microfinance
42 individual loans to the stool makers in Jorba. He Information Exchange (MIX). This provides detailed
then went on to found the non-profit Grameen Bank in financial and social performance information from leading
Bangladesh and won the Nobel Peace Prize in 2006. Microfinance Institutions (MFIs) and market facilitators,
as well as from donor organisations and investors in
Microfinance is becoming a new model for financial microfinance.
services through the provision of online information
covering borrowers, lenders and intermediaries, promoting Another initiative covered by Forbes in February 2008
transparency and an open approach to risk management. was the announcement that Standard and Poor’s
 | Perspectives on technology
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