ABSTRACT
This chapter explores the reasons for the ‘absurd gap’ between supply and demand in microfinance. Among the economically active poor of the developing world, there is strong demand for small scale commercial financial services – for both credit and savings. Microfinance in the 1990s was marked by a major debate between two leading views on how to fill the absurd gap in microfinance: the financial systems approach and the poverty lending approach. Sustainable microfinance is carried out by commercial institutions that deliver financial services to the economically active poor at interest rates that enable the institutions to cover all costs and risks, and to generate a profit. There are many types of successful microcredit and microsavings programs. Commercial microfinance institutions can become profitable and viable over the long term. Economies benefit from the increased production, from the new resources made available for investment, and from improvement in equity.
