Does transformation enhance or hinder financial relationships in microfinance? The struggle between financial and social goals in Peru

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Abstract:

Dynamic microfinance institutions are evolving from non-governmental organizations into regulated financial institutions at rapid speed. In Peru, recent economic growth and a facilitating regulatory environment have set the conditions for this kind of institutional transformation in an increasingly competitive microfinance market. Following a life-cycle approach, this paper scrutinizes key developmental stages with regard to the case-study microfinance institution's financial relationships, and then situates it within the overall Peruvian microfinance wholesale lending market of nearly 200 organizations. A major finding is that, in the transformational process from NGO to regulated financial status, new and highly diverse lending relationships are forged while others peter out. While there is evidence to suggest that the Peruvian wholesale market creates opportunities for all to benefit from all types of lender, there exists a tendency for specialization whereby commercial lenders tend to partner with regulated microfinance institutions while NGOs struggle to find lenders even among the socially motivated type.

Keywords: MICROFINANCE; NGOS; PERU; REGULATION; WHOLESALE LENDING

Document Type: Research Article

DOI: http://dx.doi.org/10.3362/1755-1986.2012.021

Publication date: September 1, 2012

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