A Billion to Gain? A study on global financial institutions and microfinance

Since the end of last year’s International Year of Microcredit 2005, numerous global commercial banks and international financial institutions have rapidly expanded their microfinance activities. While some banks have been in the business for several years, most international banks have been engaged in microfinance for only two or three years. The purpose of this paper is to provide an update of the February 2006 study on global commercial banks and microfinance entitled A Billion to Gain?. This paper serves two objectives: To provide an update of international banks’ activities and future plans regarding microfinance ; To describe how international banks can contribute to providing financial services to the poor. In line with the second objective and to determine how international banks actually fulfil their role as microfinance service providers, the banks’ commitment and involvement were examined in more detail. In microfinance, international banks are discovering a new market that is closely related to their core business. How will these banks enter this market? Do international banks serve the poor for corporate responsibility motives or is it a new way of exploring a future commercial activity? As concluded in A Billion to Gain? most assume a dual strategy, combining corporate social responsibility (CSR) with immediate or future business goals. It is argued that the phase in which a bank finds itself greatly influences whether strategies focus on social and developmental issues, or on commercial motives. Initially, banks are often committed to microfinance for CSR motives. At a later stage, when they see a business case, they tend to increase their activities and become more involved in microfinance for commercial reasons.

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