Microfinance Revolution

23250 v 1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized The Microfinance Revolution Sustainable Finance for the Poor © 2001 by the International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, NW, Washington, D.C. 20433 USA All rights reserved Manufactured in the United States of America First printing May 2001 The findings, interpretations, and conclusions expressed in this book are entirely those of the author and should not be attributed in any manner to Open Society Institute or to the World Bank, its affiliated organizations, or members of its Board of Executive Directors or the countries they represent Library of Congress Cataloging-in-Publication Data Robinson, Marguerite S., 1935– The microfinance revolution: sustainable finance for the poor / Marguerite S. Robinson. p. cm. Includes bibliographical references. ISBN 0–8213–4524–9 1. Microfinance—Developing countries. 2. Microfinance. 3. Financial institutions—Develop- ing countries. 4. Poor—Developing countries. I. Title. HG178.33.D44 R63 2001 332.2—dc21 2001026146 Edited, designed, and laid out by Communications Development Incorporated, Washington, D.C. and San Francisco, California The Microfinance Revolution Sustainable Finance for the Poor Lessons from Indonesia The Emerging Industry Marguerite S. Robinson The World Bank, Washington, D.C. Open Society Institute, New York Praise for The Microfinance Revolution “Dr. Robinson has written a magnificent work that provides a jolt of energy as well as wise guidance to the fledgling microfinance industry.This book will quickly become re- quired reading for students and professionals in and around the microfinance industry, for donors and government agencies, and for investors.This is also the first book that, through thoughtful analysis, vivid images, and extensive research, will beckon commercial bankers and the rest of the ‘real world’ to sit up and take interest in microfinance. It will thus be a potent force in fusing the small scale, donor-driven microfinance of today with the formal financial systems of tomorrow—systems that will provide high-quality financial services on a permanent and ever increasing scale to millions of poor house- holds around the world.” —Elizabeth Littlefield,Chief Executive Officer,Consultative Group to Assist the Poorest;Director, World Bank; and former Managing Director, JP Morgan “The Microfinance Revolution is a magnificent contribution to the theory and practice of international development. It is a much-needed wake-up call for economists who have long pooh-poohed the potential of microfinance institutions for promoting savings and investment and alleviating poverty.Likewise, it will alert advocates of subsi- dized microfinance that the financial needs of the vast majority of the poor can be met by commercially based microlending.” —David E.Bloom,Clarence James Gamble Professor of Economics and Demography,Harvard University “Marguerite Robinson has produced a major work that will unquestionably lie at the very center of microfinance literature for many years to come. Dr. Robinson is uniquely qualified, having spent many years living in tiny villages as an anthropolo- gist, seeing informal finance as it happens, and having spent many years advising top policymakers on how to design effective financial services for the poor, most notably in Indonesia with Bank Rakyat Indonesia projects. Her account of the paradigm shift in microfinance is both exhaustively researched and provocative. She has a wonderful ear for stories; her book is full of marvelous phrases, excerpts, and anecdotes from the world of poor people’s finance, in addition to being a wellspring of quantitative doc- umentation for the trends about which she writes. Highly recommended!” —Robert Peck Christen, Senior Adviser, Consultative Group to Assist the Poorest;Academic Director, Microfinance Training Program, Naropa University,Boulder, Colorado “The Microfinance Revolution is an ambitious achievement that will be the definitive work on microfinance now and for some time to come. In clear, convincing, and often el- egant language, Marguerite Robinson gives us the fruits of her deep experience and painstaking research.This book provides the most complete statement existing on how microfinance arose,how it works,and why it matters.The Microfinance Revolution views microfinance from the commercial or financial systems perspective.Robinson sets microfinance in its correct place as one important tool in the ‘poverty alleviation tool- box.’In so doing she dispels the fuzzy myths surrounding the image of microfinance as a panacea for poverty.Every microfinance professional will want a copy of this work as a comprehensive reference for the field. Every policymaker or donor will be remiss if he or she makes decisions about microfinance without first internalizing Dr.Robin- son’s messages.” —Elisabeth Rhyne,Senior Vice President,ACCIÓN International;former Director,Office of Mi- croenterprise Development, U.S.Agency for International Development; author, Mainstreaming Microfinance: How Lending to the Poor Began, Grew and Came of Age in Bolivia “The Microfinance Revolution is a tour de force remarkable both for the breadth of its vision and for the wealth of experience it captures.Dr.Robinson folds page after page of telling information about real people and their financial behavior, and about real institutions and their achievements, into a vigorously argued—and sometimes con- troversial—synthesis. Anyone interested in financial services for poor people should read it.” —Richard Rosenberg, Senior Adviser, Consultative Group to Assist the Poorest “Marguerite Robinson’s book succeeds admirably in presenting and analyzing the fun- damentals of microlending and mobilizing savings among the poor. In distilling the essence of microfinance, Dr. Robinson demonstrates with extraordinary clarity that the application of commercial principles to microfinance ensures the long-lasting ca- pacity of institutions to reach those previously excluded from financial services.This book combines the detailed, painstaking research of a noted scholar with the experi- ences of successful microfinance institutions around the globe, and provides a view of remarkable scope and exceptional weight. Dr. Robinson’s work is not only an essen- tial contribution to our current understanding of microfinance,but also a key resource for laying out the future of this field.” —María Otero, President and Chief Executive Officer,ACCIÓN International “If you read Finance at the Frontier, published in 1991,you should read The Microfinance Revolution, published in 2001. If you did not read Finance at the Frontier and you seek an authoritative source about microfinance,you should still read The Microfinance Rev- olution.” —J.D.Von Pischke, President, Frontier Finance International; author, Finance at the Frontier “Marguerite Robinson has spent 20 years at the cutting edge of microfinance. In this book Marguerite gives us a history lesson and a guide on how to build commercial finance that fits the needs of the world’s poor majority.Policymakers, finance leaders, and anyone who wants to join this revolution in banking must read this book.” —Nancy M. Barry,President,Women’s World Banking “In the past five years the enormous promise of access to capital as an effective tool for the world’s poor has erupted into the world’s consciousness.But the facts have often come intertwined with myth and legend, until oft-repeated misinformation threat- ens today to debase the accomplishments of truth. In this fog Marguerite Robinson’s book, The Microfinance Revolution, arrives as a beacon. In it she combines her exten- Praise for The Microfinance Revolution (continued) sive first-hand experience,gained initially in Asia and then around the world,with the intellectual rigor of the first-rate scholar she also is.The result is a rare, comprehensive look at microfinance that is long on analysis and short on sound bites. By asking the right questions and seeking the tough answers around the globe, she expands our understanding even though we in the field might from time to time squirm in our seats. In the process she has presented all of us who are seriously committed to the field—practitioners, policymakers, academics, public servants, and most of all, the poor of the world—a wonderful gift of intellect and expertise.” —Michael Chu, Chair, Capital Markets; former President and Chief Executive Office,AC- CIÓN International; former Chairman of the Board, BancoSol “This book tells a long overdue story—that of commercial microfinance institutions. It highlights the world’s most efficient rural microfinance institution,Bank Rakyat Indonesia’s microbanking system. Marguerite Robinson provides extensive analysis of the remarkable traits that have made microbanking at BRI an unprecedented success, detailing its policies,creative mode of operations and incentives for clients and staff,and training programs.This program has achieved massive outreach to millions of low-income clients, providing clients with both savings and credit services.All this has been accomplished in the past decade without subsidies; in fact, it is a highly profitable operation. BRI’s path- breaking achievements have often been overshadowed by other,overpublicized programs. The Microfinance Revolution is a timely publication that clearly demonstrates the tremen- dous potential embedded in well-designed microfinance programs.”

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