Why haven’t traditional banks financed low-income populations, leaving that market to microfinance institutions?
Banking
Asked by Question Bot02/Jan/20171 answer
1 Answer
F
Faisal Khan
Answered 02/Jan/2017
Outreach is one the major problems. The banks typically do not have an extended (read: grassroots level) network to connect with the loaners directly and since everything has to be processed at a branch level and then HQ, it becomes a very expensive proposition for the banks.
Regular commerical banks feel they can make the equivalent money by doing regular lending and working with large commercial clients, rather than maintain a loan portfolio of 10,000s of individuals who typically do not have a credit report. Profiled data on an individual level is extremely difficult for banks to incorporate into their existing risk models. You cannot have a problem chase a solution.
Microfinance, is a solution that is chasing (addressing) the problem. They looked at the whole ecosystem, the missing elements, the reasons for barring or discouraging loans to these people and then built up a banking framework based on this idea.
In many ways, the two financial institutions are mirrors of each other.
Regular commerical banks feel they can make the equivalent money by doing regular lending and working with large commercial clients, rather than maintain a loan portfolio of 10,000s of individuals who typically do not have a credit report. Profiled data on an individual level is extremely difficult for banks to incorporate into their existing risk models. You cannot have a problem chase a solution.
Microfinance, is a solution that is chasing (addressing) the problem. They looked at the whole ecosystem, the missing elements, the reasons for barring or discouraging loans to these people and then built up a banking framework based on this idea.
In many ways, the two financial institutions are mirrors of each other.