Networks of Micro and Small Enterprise Banks: A Contribution to Financial Sector Development

The paper is a follow-up to an article published in Technique Financière etDeveloppement in 2000 (see the appendix to the hardcopy version), which portrayedthe first results of a new strategy in the field of development finance implemented inSouth-East Europe. This strategy consists in creating microfinance banks asgreenfield investments, that is, of building up new banks which specialise inproviding credit and other financial services to micro and small enterprises, instead oftransforming existing credit-granting NGOs into formal banks, which had been thedominant approach in the 1990s. The present paper shows that this strategy has, in thecourse of the last five years, led to the emergence of a network of microfinance banksoperating in several parts of the world.After discussing why financial sector development is a crucial determinant of generalsocial and economic development and contrasting the new strategy to formerapproaches in the area of development finance, the paper provides information aboutthe shareholder composition and the investment portfolio of what is at present theworld's largest and most successful network of microfinance banks. This network is agood example of a well-functioning "private public partnership". The paper thenprovides performance figures and discusses why the creation of such a network seemsto be a particularly promising approach to the creation of financially self-sustainingfinancial institutions with a clear developmental objective.