Microfinance: What Role for Commercial Banks?

by Axel Pierron, September 28, 2005


Paris, France September 28, 2005


Celent estimates that the microlending market will reach US$20 billion by 2008.

In a new report, " ?", Celent analyzes the microfinance industry and provides detailed information on microfinance stakeholders.

Microfinance refers to products and services designed for low-income entrepreneurs and provided by microfinance institutions (MFIs). "The microfinance industry is still in its infancy, and only 10% of MFIs are profitable. The main challenges for MFIs are attaining profitability, capacity building, diversification of products and services, and transparency," says Perrine Fiorina, Celent analyst and co-author of the report.

Better know-how, technology, greater access to funds, and enhanced capacity make commercial banks the most qualified to meet the untapped demand of microentrepreneurs. "More and more commercial banks are interested in entering the microfinance market, which has proven to be profitable. For instance, the Grameen Bank, which only offers microfinance products and services, achieved a loan recovery rate of 98.95% and made a net profit of $6.53 million in 2005. Thus, commercial banks can see microfinance as a business opportunity and a way to attract new customers," adds Fiorina.

Commercial banks have several ways to get involved in microfinance, from the creation or participation in a microfinance investment fund, to the creation of a special internal unit. "Partnerships between commercial banks and MFIs will be the key to success because they allow partners to share experiences, knowledge, and responsibilities," says Fiorina.

Profitability, diversification of products and services, and outreach can be done more quickly using new information and communication technologies. The computerization of MFIs associated with an Internet connection, the implementation of MIS, and accounting software could make great headway in increasing transparency. "Transparency and profit-motivated management will attract private investors to the microfinance sector, which demonstrates a high repayment rate and good profitability. In two years, from 2002 to 2004, the foreign investment in microfinance will have experienced a 300% growth rate from 2002 to 2004 to reach US$1.78 billion. This trend should accelerate as MFIs increase their level of transparency and management responsibility," confirms Axel Pierron, Celent analyst and co-author of the report.

The report provides clear strategic recommendations on penetrating the microfinance industry according to geographic region, financial institutions’ structure, product range, expected ROI, etc.

The 37-page report contains 10 figures and 4 tables.

of Celent's Retail Banking research service can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.


Send mail to info@celent.com with questions or comments about this Web site.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
Tel: +1 212 345 1366

Europe (London)
Chris Williams
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
Tel.: +81 3 3500 3023

Table of Contents


Paris, France September 28,  2005

Microfinance: What Role  for Commercial Banks?

Return to report Abstract

Executive Summary 3
Introduction 4
Microfinance Today 6
  Microfinance: Toward Increasingly Diversified Products 6
  Stakeholders in the Microfinance Market 9
  Microfinance in Western Europe: A Particular Case 19
Commercial Banks and Microfinance 21
  Southern Hemisphere Commercial Banks 21
  Northern Hemisphere Commercial Banks 25
  Different Ways for Commercial Banks to Get Involved in Microfinance 28
  Lessons Learned by Commercial Banks in Microfinance 29
Role of Information Technologies 31
Conclusion 34
Objectivity & Methodology 36

Sign in to download reports and access personalized information