Trends in Evolution of the Microfinance Industry

Posted: October 17th, 2013

Name:

Lecturer:

Course:

Date:

Trends in Evolution of the Microfinance Industry

The chapter on Business plan speaks about current trends witnessed in the microfinance industry. The chapter maintains that MFIs, funders, microfinance networks, donors, and development projects have shifted their focus on the development of supply capacity. Indeed, the microfinance industry has gone through significant change due to certain drivers. There has been an increase in commercial microfinance institutions (MFI’S) that supply wider ranges of financial services to customers excluded financially. The degree of industry professionalization has increased substantially, especially in comparison with small micro credit experiences predominant in most of the 20^th century.

The chapter develops the premise that advancement in technology had a role to play in some of these trends. Application of new technology gave microfinance institutions the ability to apply several advantages. Specifically, these institutions are now able to optimize their management of finances, increase the quality and set of offered services. Ultimately, development in technology enabled the microfinance industry to reach a bigger pool of customers. In this regard, the two major trends the microfinance finance industry has gone through is the development of peer-peer online lending platforms designed to develop mobile banking services and microfinance.

In relation, peer-to-peer on-line platforms in microfinance have led to the trend of microfinance institutions having access to the potential of an unlimited pool of people having financial surplus that may be interested with financing MFI customers. At the same time, microfinance platforms based on web technology have enabled MFIs to diversify their funding sources, attract low priced funds, and to reduce their reliance on international donors. On the other hand, advancement in mobile banking services has also influenced trends associated with the microfinance industry. This factor has been facilitated by the convenient means of communication such as cell phones available even in countries with poor economies. The co-functioning between MFIs and mobile networks has lent to the trend of large scale supplying of payment services and loans especially in remote areas. This mainly favors customers with limited or no access to microfinance institutions.

Another reason for these trends rests with the nature of financial intermediaries. In this case, many intermediaries including large financial groups and commercial banks are becoming more involved with microfinance. They do this by either providing financially excluded people with financial services or providing funds and technical assistance to sustain local MFIs. An increase in the degree of professionalization, the industry’s widened usage of new technologies, and an increased involvement of financial institutions in microfinance have implied significant rethinking supervisory practices.

Due to the factors of change mentioned above, the complexity and size of the microfinance industry has grown vastly in many countries in relation to the resulting trends. Hence, microfinance risks are going through change with MFIs becoming increasingly capable of managing them. The chapter on Business plan clearly illustrates how significant transformations have led to various trends. Ultimately, these trends have made it more easy and convenient to diversify the reliance of microfinance institutions from expensive loan providers and international donors. When the above trends are taken into consideration, it necessitates projecting higher growth of microfinance businesses worldwide. Hence, more attention will be paid to the microfinance industry.