Private Enterprise and Financial Markets > Micro, Small and Medium Enterprise
Micro Enterprise, Development Review Vol.5 No.2
By SDS/MSM (12/03, En, Es)
The first article, written by Heywood Fleisig and Nuria de la Peņa of the Center for Economic Analysis of Law, reveals how the underlying legal frameworks in Latin America effectively prevent financial institutions and other lenders from providing the credit demanded by private businesses. The article explains how the inability to effectively use collateral lead to a situation where 10 times less credit is available to the private sector in Latin American countries than in the United States (as percentage of GDP). In this environement many business opportunities go unexplored, leading to lower investment and economic growth. Not surprisingly, it is the smallest firms, which are perceived by creditors as more risky than larger companies, that suffer most from this kind of credit rationing.
The second article, written by Todd Farrington of MicroRate and Julie Abrams, examines how the capital structure of microfinance institutions is changing as they grow and become increasingly formalized. The article also explores how competition is having a profound impact on operational and funding decisions of these institutions, as it forces them to find ways to mobilize savings in a cost-effective manner. Another trend noted by the article is the declining reliance on donor funding among microfinance institutions, particularly those that are growing steadily, which bodes well for the future of the industry.
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Last updated: 06/13/07
