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products and services offered by microfinance institutions

The purpose of this chapter has been to give a comprehensive review of the existing literature to the discipline of microfinance and microfinance institutions. We have discussed the issues of MFI Welfarists and Institutionalists approaches, The Self-Sufficiency and Sustainability of MFIs, client targeting, and impact assessment in a summary literature review.

Analysis of microfinances' performance and development of informal institutions in Cameroon

By Djamaman Brice Gaétan


This chapter focuses on some of the concepts of microfinance and the role they play in the development of informal institutions. The concepts chosen are those that are in relation with the area of this thesis. The chapter opens with an overview of microfinance. This shows the various products and services that MFIs have and explains how importance they are to the development of non-formal sector. The next center of attention is the concept of informal sector. This gives an idea of informal sector in Cameroon. The following concern is to investigate the theoretical links between microfinance and the development of the informal sector. Further, we will explain the microfinance schism i.e. the relationship between social performance and financial performance.

III.1- The concept of microfinance III.1.1- Definition

The term micro-credit? was first coined in the 1970s to indicate the provision of loans to the poor to establish income-generating projects, while the term microfinance? has come to be used since the late 1990s to indicate the so-called second revolution in credit theory and policy that are customer-centered rather than product-centered (Elahi and Rahman 2006:477). But the terms micro-credit? and microfinance? tend to be used interchangeably to indicate the range of financial services offered specifically to poor, low-income households and micro-enterprises (CGAP website 2010; Brau and Woller 2004:3). Microfinance principally encompasses micro-credit, micro-savings, and micro-insurance and money transfers for the poor 9. Microcredit, which is part of microfinance, is the practice of delivering small, collateral-free loans to usually unsalaried borrowers or members of cooperatives who otherwise cannot get access to credit (CGAP website 2010; Hossain 2002:79). And while non-financial services such as education, vocational training and technical assistance might be crucial to improve the impact of microfinance services, they are not the focus of this review. Like anyone else, poor people need an array of financial services to help them

deal with a range of short to long term consumption needs and the ups and downs of income and expenses, to make use of opportunities, and to cope with vulnerabilities and emergencies. The needs of the poor for financial services have been

9 Of late, housing finance for the poor, micro-leasing, micro franchising and other financial services for the poor have been added to the broad grouping of microfinances.

Analysis of microfinances' performance and development of informal institutions in Cameroon

By Djamaman Brice Gaétan

categorized into three groups, namely life-cycle needs that can be anticipated (like marriage, burial and education), unanticipated emergencies (like sickness, loss of employment, death of a breadwinner, floods), and opportunities (like investing in a new business or buying land) (Matin et al. 1999:7-8) 10 .

The spectrum of financial services available to meet these needs includes investment (savings), lending (credit services), insurance (risk management) and money transfers. But the poor?s access to formal financial services is limited, and the services available do not acknowledge the diverse requirements of the poor (Matin et al. 1999:3). Instead poor people tend to juggle financial relationships with various financial institutions (and with friends and family) to have the flexibility and reliability they need (Collins and Morduch 2010:23). They depend on various types of formal and informal community funding, credit unions, moneylenders, cooperatives, self-help groups and associations (like accumulating savings and credit associations, rotating savings and credit associations, burial societies), and financial NGOs. And with commercial financial institutions considering ways in which to provide financial services to the poor in a profitable manner, microfinance services are now provided by a whole spectrum of role players. To categorize the various financial institutions, Matin et al. (1999:5) created a three-by-three matrix, with one axis comprising the financial service components (savings, credit and insurance) and the other axis the providers (informal, formal, and semi-formal providers). Rutherford (1996) based his categorization on the type of service as well as whether it is owned and managed by the users themselves or other providers, while Staschen?s typology (1999:7-8) is based on the source of funds. The reality then is a mix of financial services accessed by poor people from a variety of service providers, depending on local knowledge, history, context and need (Matin et al. 1999:9).

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