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Microfinance Issues

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MicroFinTech

Part of the book series: Palgrave Studies in Financial Services Technology ((FST))

Abstract

After the microfinance background, examined in Chapter 2, this chapter analyzes the microfinance issues to provide a framework for MicroFinTech applications. Sustainability is a key feature for the survival of microfinance institutions that look for an expansion of their outreach targets.

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Notes

  1. 1.

    Increased competition reduces margins and decreasing crossed subsidies might harm the poorest.

  2. 2.

    See Ashta (2018).

  3. 3.

    See Tchakoute Tchuigoua et al. (2020).

  4. 4.

    Armendariz de Aghion and Morduch (2010).

  5. 5.

    See Prahalad (2006).

  6. 6.

    Most foreign debt for MFI is denominated in hard currencies (mainly the US$), so creating a currency risk (due to the imbalance between foreign currency liabilities and domestic currency assets) against which hedging proves challenging and expensive.

  7. 7.

    Inflation and exchange rates are linked by the purchasing power parity theory, which uses the long-term equilibrium exchange rate of two currencies to equalize their purchasing power. Developed by Gustav Cassel in 1920, it is based on the law of one price: the theory states that, in an ideally efficient market, identical goods should have only one price and consequently price changes (inflation) and currency rates are linked.

  8. 8.

    See Godfroid (2019).

  9. 9.

    See Prahalad (2006).

  10. 10.

    See Soumaré et al. (2020).

  11. 11.

    Collier (2007, p. 80). Physical borders for workers are still the hardest to trespass and mobility of capital is much easier than immigration.

  12. 12.

    See Moro Visconti (2009, 2011).

  13. 13.

    In the mid-1990s, the bank started to get most of its funding from the Central Bank of Bangladesh. More recently, Grameen has started bond sales as a source of finance. The bonds are implicitly subsidized as they are guaranteed by the Government of Bangladesh and still, they are sold above the bank rate.

  14. 14.

    The subsidy trap is a well-known and documented danger.

  15. 15.

    which the philosopher Rawls (1971) identifies as the most significant primary good.

  16. 16.

    Environmental factors are a key issue in explaining variations among countries and include the regulatory environment; macroeconomic stability (country and political risk); competition from other financial intermediaries (subsidized by the government; private …); income level of clients, etc.

  17. 17.

    E.g., international accounting standards or European directives, which aim to harmonize legislation, to favor comparison-driven competition. The risk for those who do not comply to international standards is to be emarginated from a global market, which sets for everybody the rules of the game: those who do not accept them are simply not admitted playing.

  18. 18.

    Subsidies are generally beneficial when assuming a non-flat distribution of social weights, a demand of credit which is elastic to interest rates, adverse selection effects and positive spillover of microfinance credits on other lenders.

  19. 19.

    See Wellalage and Thrikawala (2021).

  20. 20.

    Such as the purchasing power parity, according to which exchange rates adapt to inflation differentials, or the interest rate parity, which recognizes the positive effect of higher (real) interest rates on a currency appreciation or the spot forward parity, linking the spot with the forward market.

  21. 21.

    See Moro Visconti (2009).

  22. 22.

    Data for year 2011 (2009 in brackets). Source http://www.cgap.org/gm/document-1.9.49643/Microfinance_Banana_Skins_2011.pdf.

  23. 23.

    See also https://www.centerforfinancialinclusion.org/microfinance-banana-skins-2014-the-csfi-survey-of-microfinance-risk.

  24. 24.

    See Habib and Jubb (2015).

  25. 25.

    Mookherijee in Banerjee et al., (2006, p. 234).

  26. 26.

    Allet and Hudon (2015).

  27. 27.

    Meyer and Krauss (2021).

  28. 28.

    See Allet and Green (2015).

  29. 29.

    Tauhidul Islam (2017) and Tanin (2017).

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Authors and Affiliations

  1. Catholic University of the Sacred Heart, Milan, Italy

    Roberto Moro-Visconti

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  1. Roberto Moro-Visconti
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Correspondence to Roberto Moro-Visconti .

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Moro-Visconti, R. (2021). Microfinance Issues. In: MicroFinTech. Palgrave Studies in Financial Services Technology. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-80394-0_3

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