Microfinance and the commercial banking system

Abstract

By adopting microfinance as a core component in their development aid programmes, non-governmental organizations (NGOs) and other development groups aim to reduce poverty and also, raise the status of women and disadvantaged communities. Nevertheless, despite its enormous success in tackling poverty, the applicability of microfinance in formal banks remains a major challenge for developing countries where most of the world's poor reside without access to banking facilities. The authors of this article posit that central banks and the banking sector, in general, can promote good and inclusive financial governance in developing countries by adopting microfinance practice and by integrating pro-poor policies into their banking systems. Focusing on the case of Barbados, the article examines the importance of microfinance for commercial banks. It is argued that the integration of microcredit into the banking and credit schemes of commercial banks and microfinance institutions is a key to promoting good governance.