MicroCapital Paper Review: “The Second Story: Wholesale Microfinance in Latin America”

To access this article visit: “The Second Story: Wholesale Microfinance in Latin America”

Authors: Marguerite Berger, Alison Beck Yonas, Maria Lucia Lloreda

Published by: Inter-American Development Bank, March 2003

Quantitative Information: This article addresses the use of “second-tier” or wholesale channels within the microfinance sector to distribute additional resources/funding to financial institutions already providing loans to microenterprises. In Latin America, the use of “second-tier” or wholesale channels represents an opportunity to broaden the reach of a developing microfinance market. “Microenterprises with fewer than 10 employees are one of the main sources of employment in Latin America and the Caribbean and account for more than 90 percent of all businesses in the region.” As further demonstration of the market size and opportunity, statistics are provided on microenterprises across Latin American countries, including number of single person firms, number of microenterprises, and projections on the percentage of microenterprises with microfinance credit. Sizing estimates are given for the number microentrepreneurs as a percentage of the total population. Supplemental case studies on wholesale channels have been provided for Columbia, El Salvador, Paraguay, and Peru.

Qualitative Information: This article reviews the Inter-American Development Bank’s (IDB) Microfinance Global Credit Program as an example of a “second-tier” or wholesale initiative within Latin America to both expand microenterprises’ access to capital and support microfinance institutions’ programs while fostering regulatory reform. The authors attest that wholesale programs can effectively channel resources to MFIs, though they do cite Bolivia as an example of a country that has a functioning microfinance industry without the use of many “second-tier” programs. Although the authors argue the IDB’s Global Credit Program achieved the goal of reaching more microenterprises, they concur there are still weaknesses with the “second-tier” model åö namely, in some countries the IDB Program still did not reach smaller borrowers nor did it attract the banking sector to the microfinance industry. Ultimately, they assert market conditions and regulation will determine the success of this “second-tier” model. While this article illustrates the strengths and weaknesses of one wholesale initiative across several countries, the authors fail to compare and contrast other “second-tier” models to reinforce their arguments.

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