International best practices for financing emerging enterprises: Lessons for South Africa.

Riley, Thyra A

Microenterprises are crucial to the survival of many poor households and ease unemployment in many countries, but they are constrained by their lack of access to formal financial services. The costs of serving such enterprises are simply too high for most financial institutions. Nevertheless, certain banks, such as the Grameen Bank in Bangladesh, the Bank Rakyat Indonesia, and Acción International in Latin America, have shown that lending to microenterprises can be profitable. This article explains why lending to microenterprises is prohibitively expensive using normal banking methods. It also discusses the standards of performance that twelve best‐practice institutions in the developing world have set and the methods they use to widen outreach, improve efficiency, and reduce costs and risks. The article describes the challenges facing similar institutions in South Africa and points to the lessons that can be learned from the experience in other developing countries. This experience shows that bringing the costs of lending in line with the small size of the loans made is the key to serving microenterprises sustainably.

Development Southern Africa, 1996, Vol 13, Issue 6, p799

0376-835X

Academic Journal

10.1080/03768359608439935