The Uneven Development of Microfinance: A Latin-American Perspective

This paper presents a set of variables that explain the differences in the uneven development of the microfinance sector of Latin America. It applies a cross-country regression by using a unique dataset on the outreach of microfinance institutions (MFIs) in the year 2001. The paper finds that:

• Microfinance is more prevalent in countries that have received a higher proportion of international support;
• MFIs reach more number of clients in high inflation areas;
• Human capital and population density play an important role in the growth of MFIs;
• Less industrialized countries have bigger microfinance markets;
• Financial sector liberalization has a positive influence on the presence of microfinance;
• Regulatory environment does not play a significant in the development of microfinance sector.

The paper concludes that further research is needed for analyzing:

• The average loan size as a dependent variable to understand the depth of outreach of microfinance sector in a country;
• Emergence of microfinance and development processes using panel data;
• Role of informal players.