Title: Microfinance vs. traditional banking in developing countries

Authors: Roberto Moro Visconti

Addresses: Department of Business Administration, Università Cattolica del Sacro Cuore, largo A. Gemelli, 1 – 20123 Milano, Italy

Abstract: This paper describes some of the main aspects of microfinance (MF) in under-developed countries, showing why it has succeeded in reaching the poor, while traditional banks have not, using innovative devices such as group lending with self-monitoring, short repayments instalments and small loans. The aim of the paper is to show how microfinance institutions (MFIs) can fill the lack of traditional banks in under-developed countries, proposing unconventional products and innovative business models. This study also investigates about possible synergies between banks and MFIs, avoiding overlaps and mission drift. It is shown that MFIs can improve their outreach using technological devices such as M-banking. Innovative questions and proposals are illustrated, so as to give an updated and synthetic picture of the state-of-the-art, which might prove useful for researchers and practitioners.

Keywords: microfinance; traditional banking; developing countries; microcredit; poverty alleviation; lending innovation; corporate governance; outreach; sustainability; NGOs; non-governmental organisations; group lending; moral hazard; adverse selection; microinsurance; microdeposits; m-banking; mobile banking; unconventional products; innovative business models.

DOI: 10.1504/IJFIB.2016.076613

International Journal of Financial Innovation in Banking, 2016 Vol.1 No.1/2, pp.43 - 61

Received: 01 Aug 2015
Accepted: 01 Oct 2015

Published online: 16 May 2016 *

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