Microfinance Myopia: Lessons from the Mainstream
by Kim Wilson

This essay attempts to remove the shades that blind the microfinance sector to the value of its customers and what its customers truly value. It proposes that the social agenda and financial health of microfinance institutions would be far more sound if we understood who our customers are, why they leave, what they really want, and the real business we are all in.

Performance Measures for Microenterprise in the United States
by Karen Doyle and Jerry Black

Microenterprise, while currently serving a small number of America's poor, is often the only option—other than receiving welfare—for a variety of individuals to improve their standard of living or quality of life. MicroTest, a project of the Aspen Institute, was created to improve the value of microenterprise services and the stability of microenterprise organizations over time by perfecting and promoting the use of measures to regularly assess performance. This article proposes a performance measurement framework for U.S. microenterprise development programs.

The following key categories of outputs and outcomes can be used to assess the performance of microenterprise development providers:
- Reaching Target Groups
- Scale
- Program Services
- Program Services Performance
- Costs, Efficiency, and Sustainability
- Insitutional Capacity and Financial Condition
- Outcomes and Impact

As the microenterprise field matures, there is a growing need for some level of standardization in these performance assessments. However, there is a need to balance the simplicity and accessibility of standardization with the diversity of this field. The performance measurement framework described in this article begins the process of determining excellence among distinct strategies, targeted to different populations, and implemented in unique socioeconomic environments by a broad range of microenterprise development organizations.

Client Information Sharing in Bolivia
by Anita Campion

As the microfinance industry becomes more competetive, microfinance institutions (MFIs) increasingly seek access to credit bureaus and credit information agencies. The growing number of microfinance providers in the market results in borrowers having more access to loans, which can lead to client overindebtedness and default. By sharing client informatoin with each other and by using credit bureau information on client history and indebtedness, MFIs facing competition can reduce their credit risk and avoid unnecessary losses. While the growing interest in credit bureaus for microfinance is global, to date, few countries have credit unions and even fewer include microfinance clients in their databases. However, technological advances have lowered the costs of maintaining a large database of information and have made the cost of operating a credit hureau more financially feasible. Credit bureaus are now sprouting up, particularly in Latin America, and microfinance institutions are vying for access to their databases of information. This article presents the case of Bolivia, a country which has experienced extreme competition among microfinance providers, and which is now making efforts to integrate microfinance clients into its credit information system.

India's Regional Rural Banks: The Institutional Dimension of Reforms
by Nitin Bhatt and Y.S.P. Thorat

Efforts to reform India's failing Regional Rural Banks (RRBs) have had limited impact, because reformers have paid little attention to the institutional dimensions of the problems facing the banks. Few efforts were made to redesign the perverse institutional arrangements that gave rise to incompatible incentive structures for key stakeholders, such as political leaders, policy makers, stockholders, bank staff, and clients. We recommend that the next leg of reforms focus on aligning the incentives of these stakeholders by giving greater importance to the RRBs' internal organizational contexts and larger policy environments.

Coordination Failure in the Rural Credit Market
by Atul Mishra

This paper tries to explain the curious fact that while at the national level the rural sector saves more than what it invests in itself in India, at the micro level, credit constraint is reported to be the main binding constraint on the activities in the rural economy. The explanation lies in the phenomenon of coordination failure. The public sector rural banks mobilize huge amounts of savings, but because of low rates of interest and high default rates, they do not lend in equal measure. Indeed, in India the public sector rural banks mobilize as savings three times the amount they lend as credit for investment.

Raising the rate of interest at which the rural banks lend will not only raise the savings but also the investment in the rural sector. This is because at the current low level of rate of interest the rural credit market is severely rationed. As the rate of interest is allowed to rise more banks become viable, banks increase their lending, more people are brought into the ambit of rural banks and away from the money lender. The poor especially benefit as this increased rate of interest is still only half the rate of interest that the moneylender charges. The policy suggestion is to allow the public sector rural banks to charge economically viable and market clearing rates of interest.

How To Reduce Arrears In Microfinance Institutions
by Dan Norell

Reducing arrears is crucial if MFIs are to achieve self-sufficiency. MFI staff must understand the causes of arrears - whether from clients' testing the MFI's determination to collect, crises in clients' lives, loans that are too large, or loans given on the basis of favoritism. Analytical tools for assessing and preventing arrears include key measures for analyzing arrears (e.g., portfolio quality ratios and performance ratios by credit officer) and financial ratio tests for determining appropriate loan size. The key to reducing arrears is to follow up late loans quickly, form strong solidarity groups, update and enforce credit policies, focus credit officers' services in a specific geographic scope, not lend to start-up businesses, and provide financial incentives for credit officers. In critical arrears situations, MFIs should suspend lending to new clients until portfolio quality improves, as well as ascertain clients' ability and willingness to repay in order to design appropriate strategies to pursue.

Assessing the Need For Microenterprises in Mexico to Borrow Start-up Capital
by Heikki Heino and José A. Pagán

Mexico's microenterprises employ about 20 percent of the working age population in the country, and the number of microenterprises has increased substantially over the last decade. Given the role these small business units play in employment and wealth creation, it is important to understand the profile of firms that resort to outside start-up capital to finance their operations. Using microdata from Mexico's National Survey of Microenterprises (Encuesta Nacional de Micronegocios, ENAMIN), we analyze the socioeconomic factors related to the need for outside start-up capital. The findings show that a relatively small number of socioeconomic factors - such as the background of the microenterprise owner, the characteristics of the microenterprise, the operational business sector, the geographical location of the microenterprise, and the future plans of the owner - have important implications for the policy makers as well as for the capital-assistance tools used in fostering a microenterprise-friendly economic, social, and operational environment.

Book Review
Client-Focused Lending: The Art of Individual Lending. By Craig F. Churchill
by Bruce W. Kimzey

Book Review
Microfinance: Conversations with the Experts. Edited by Charles Oberdorf
by Matthew Wood