While microfinance has been around for a while now, it is only in the last decade or so that it has acquired a major importance in the development agenda. The sector is seen, by most observers, to have the potential to provide a basic service to the pooraccess to creditand at rates and conditions more humane than those that prevail in the informal credit market. Given the potential of microfinance to alter the agency of the poor, several global organizations have been pushing for an increase in the spread and depth of microfinance. The United Nations Development Program (UNDP) has declared 2005 to be the year of micro-credit and has taken several steps to ensure a common umbrella under which a concerted global effort can be staged to increase the penetration of microfinance to the unbankable sections of the society.

Focused research on microfinance by NGOs and development agencies reveals interesting facts and trends that need to be considered by policy makers. First, the belief that microfinance can be used to successfully help the poor is based solely on the results from a few regions of the developing world. These include the Balkans and some parts of Latin America. By and large Africa and Asia have been excluded. The second issue is that of funding; most microfinance institutions believe that the biggest constraint to their growth is lack of funds. We strongly believe funding is not the key issue facing microfinance institutions. There are adequate sources of funds; the bigger problem is that all donor agencies and private sector funds are actually competing in the same space. This results in some Micro Finance Institutions (MFIs) getting a much too large share of the fund pie and some others getting too little.

While our statements may come across as provocative, they are not to be interpreted as suggesting that microfinance does not need support. On the contrary, we feel that an appreciation and understanding of microfinance at all levels of the society is required and that it will benefit the sector if it can strengthen its linkages with the standard financial world. With the largest and poorest microfinance markets (South Asia, East Asia and the Pacific) being home to 66% of the world's poor but allocated only 6% of international funds, we strongly feel that a refocused look is required at microfinance.

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