Micro Enterprise, Development Review Vol.1 No.2
By SDS/MSM (12/98, En, Es) See also Microenterprise
The second issue of the Microenterprise Development Review offers two main articles: "Regulating Microfinance" and "Microfinance guarantees: Is There Another Model?"
The first article examines the applicability of some central supervisory instruments for the purpose of limiting the risk incurred by institutions providing microfinance services, for example standards for loan loss provisions and capital adequacy requirements. The article concludes that, as currently used in many countries, these instruments do not effectively address the risks of microfinance institutions. The article provides some examples of countries where the supervisory authorities have begun to deal with these issues.
The second article explores a new model for providing guarantees to institutions specialized in microfinance. There have been plenty of attempts to use guarantees schemes to increase the flow of financing to the microenterprise sector in Latin America and the Caribbean. However, few schemes have succeeded in this and even fewer have achieved sustainability. Nevertheless, in 1998, the IDB/MIF agreed to contribute equity capital to the formation of a new institution --the Latin America Challenge Investment Fund (LA-CIF)-- designed to provide guarantees and other financial products to microfinance institutions all over Latin America and the Caribbean. What makes the IDB/MIF and other investors believe in LA-CIF is its novel way of structuring and pricing its guarantees. In stark contrast to other existing guarantee funds for microfinance, LA-CIF will base the price of its products largely on the perceived risk of its individual clients. This will allow LA-CIF to be fully compensated for the risks it assumes
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Last updated: 05/08/07
