Department of Banking and Finance
Center for Microfinance
MOEC0265:
Microfinance
Syllabus
Fall semester 2014
Dr. Annette Krauss
Oberassistentin, Center for Microfinance
E-mail: annette.krauss@bf.uzh.ch
Büro PLC 02 (Plattenstrasse 30)
Office hours upon appointment
More information is available on OLAT:
www.olat.uzh.ch
COURSE TOPIC AND GOALS
Microfinance – financial services designed for poor and low-income clients in developing
countries – has entered the mainstream of development finance and financial markets around
the world. Much has happened since a few visionary innovators set up the first credit
programs and savings banks in the 1970s, stepping into the void left by the banking sector
that had deemed the lack of assets and the prevalence of information problems prohibitive for
business with poor people. Today, a diversified microfinance industry offers a variety of
services to growing numbers of customers. Credit programs have transformed into
specialized financial institutions. Commercial banks have started to downscale. Funding
through aid agencies has been complemented by socially responsible and profit-oriented
investors. Financial sector supervisors are dealing with microfinance. Specialized investment
funds, rating agencies, training institutes, and credit reference bureaus complement the
industry. The best performers show that it is possible to make the financial sectors of
countries more inclusive and to combine a profit orientation with social objectives. Yet recent
crises have hit the microfinance industry. The challenges remain to ensure sustainable
investment opportunities and quality services to millions of underserved customers on a large
scale, and to balance social and commercial objectives.
This course is designed to increase students’ understanding of the role of microfinance
institutions (MFIs) and banks in providing financial services to poor and low-income
customers in developing countries. Students learn how the microfinance industry evolved and
how it works. They develop an understanding of the skills and techniques used by
microfinance analysts, managers, and investors. Students also explore the role of
governments and central banks vis-à-vis the microfinance industry, and what are current
challenges facing microfinance.
The course consists of four parts:
Part I:
Part II:
Part III:
Part IV:
Understanding microfinance markets
Assessing microfinance service providers, in particular microfinance
institutions (MFIs)
Policies to build inclusive financial systems
Financing microfinance - trends in commercializing markets
First, students examine characteristics of the demand for financial services in developing
countries and analyze the market potential targeting poor and low-income customers in
developing countries. They explore why credit market traditionally failed to meet the demand
and how microfinance service providers use innovative services and institutional designs to
overcome market failures.
In the second part, students assess the institutional and managerial soundness, and financial
and social performance of institutions through case studies, applying tools used in practice by
analysts and microfinance managers.
Part III of the course gives the opportunity to investigate the role of public players in the
microfinance industry, in particular central banks and governments. This includes broader
financial sector policies and more specifically, microfinance regulation and supervision.
Finally, part IV is dedicated to discussing the different financing options for the industry.
Students investigate the role of aid agencies, social and commercial investors. Particular
emphasis is given to recent trends in the commercial financing of microfinance. The class
also discusses current challenges like repayment crises and market saturation.
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WHO WOULD BENEFIT FROM THIS COURSE?
This lecture is for students in the Master Program in Banking and Finance, Business, and the
English-language Master in Business and Economics. The course is element of:
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MA: Wahlpflichtbereich BWL 2
MA: Wahlpflichtbereich BF
CREDIT POINTS
The lecture counts for 3 ECTS points.
TEACHING APPROACH AND LANGUAGE
Learning is based on a combination of theoretical considerations to understand financial
markets in developing countries and practical experiences from around the world. It
introduces the major players in the industry, current data, numerous examples, and a series of
short case studies.
The class will be held in English.
PREREQUISITES
Bachelor Degree and knowledge of the course 'Banking’ or related courses of the Bachelor
program.
CLASS MATERIALS AND PREPARATION
Each session of the course includes a reading list with a set of assigned readings. Readings
include but are not limited to selected parts of the following books:
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Armendáriz, Beatriz, and Marc Labie (eds.). 2011. The Handbook of Microfinance.
Singapore: World Scientific.
Armendáriz de Aghion, Beatriz, and Jonathan Morduch. 2005. The Economics of
Microfinance. Cambridge, MA and London: The MIT Press.
Joanna Ledgerwood. 2013. The New Microfinance Handbook. A Financial Market
System Perspective. Washington, D.C: The World Bank.
The most important readings are marked with a star (*). It is recommended that students read
these materials before class. The syllabus also includes optional reading marked with an (o).
These texts help deepen students’ knowledge and provide additional food for thought on
selected topics covered each week. There is a collection of books and readings, including
those readings marked with a star (*), in my “Handapparat” at the business library at
Plattenstrasse 14 (ground floor).
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Please note that reading of these materials does not substitute for attending classroom
sessions. The lecture notes (slides and handouts) as well as the readings marked (*) are part
of materials tested in the final exam.
ADDITIONAL READING AND WEB SITES
The area of microfinance is a small but well-documented field. Students are encouraged to
access microfinance-related research in scholarly journals but also the wealth of materials
made available through a number of specialized institutions and online resources. Some
helpful links are:
• The Microfinance Gateway, www.microfinancegateway.org
• Consultative Group to Assist the Poor (CGAP), www.cgap.org
• The Mix Market, www.mixmarket.org
• Microsave, www.microsave.org
• Your SRI, www.yourSRI.com
GRADING
Grades will be based on a final exam. Refer to the “Vorlesungsverzeichnis” for the date, time
and location of the final exam.
In addition, class participation will be considered in cases where the exam result falls
between two grades. Class participation is particularly important in this class that uses
experiential learning approaches, and you are encouraged to frequently ask questions and
contribute to discussions.
Enjoy the class!
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COURSE OUTLINE AND READING LIST
Part I: Understanding Microfinance Markets
Wednesday 17 September 2014
Introduction and Overview: Supply and Demand for Financial Services at the “Bottom
of the Economic Pyramid”
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Definition of Microfinance
Characteristics of microfinance clients
Understanding the demand for financial services at the BOP
Evolution of the supply of financial services at the BOP
Microfinance as a development strategy; microfinance as an industry
Reading:
(*)
Armendáriz, Beatriz, and Marc Labie. 2011. “Introduction and
Overview: An Inquiry into the Mismatch in Microfinance”. In The
Handbook of Microfinance, edited by Beatriz Armendáriz and Marc
Labie, 3-7 (excerpt). Singapore: World Scientific.
(*)
Cull, Robert, and Asli Demirgüç-Kunt. 2011. “Microfinance TradeOffs: Regulation, Competition and Financing”. In The Handbook of
Microfinance, edited by Beatriz Armendáriz and Marc Labie, 141-157.
Singapore: World Scientific.
(o)
Robinson, Marguerite S. 2001. The Microfinance Revolution.
Sustainable Finance for the Poor. Volume 1. Washington, D.C. and
New York: The World Bank and Open Society Institute, 6-41.
(o)
Rutherford, Stuart et al. 2013. “Chapter. 2 Clients.” In The New Microfinance Handbook. A Financial Market System Perspective, edited by
Joanna Ledgerwood et al., 49-71. Washington, D.C: The World Bank.
Case (Classroom material):
(*)
Financial Services in Orinapa Village
Wednesday 24 September 2014
Why Do Poor People Lack Access to Financial Markets?
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Efficiency, market structure, competition and distribution issues
Agency problems: asymmetric information, adverse selection, and moral hazard
Limited liability and lack of collateral
Non-economic factors
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Reading:
(*)
Armendáriz de Aghion, Beatriz, and Jonathan Morduch. 2005. The
Economics of Microfinance. Cambridge, MA and London: The MIT
Press, 25-52.
(o)
Beck, Thorsten, Asli Demirgu-Kunt, and Maria Soledad Martinez
Peria. 2008. “Banking Services for Everyone? Barriers to Bank
Access and Use around the World”. World Bank Economic Review
22 (3): 397–430.
(o)
Demirguc-Kunt, Asli, and Leora Klapper. 2012. Measuring
Financial Inclusion: The Global Findex Database. Washington,
D.C.: World Bank Policy Research Paper No. 6025.
(o)
Hartarska, Valentina, and Nadolnyak, Denis, and McAdams, Thomas.
2013. “Microfinance and Microentreprises’ Financing Constraints in
Eastern Europe and Central Asia”. In Microfinance in Developing
Countries: Issues, Policies and Performance Evaluation, edited by
Gueyie, J.P., Manos, R., and Yaron, J., 22-35, Palgrave Macmillan.
(o)
Hoff, Karla and Joseph E. Stiglitz. “Imperfect Information and Rural
Credit Markets: Puzzles and Policy Perspectives”. World Bank
Economic Review 4 (3): 235-250.
(*)
Robinson, Marguerite S. 2001. The Microfinance Revolution.
Sustainable Finance for the Poor. Volume 1. Washington DC and
New York: The World Bank and Open Society Institute, 150-162.
Wednesday 1 October 2014
Microfinance Contract Innovations to Overcome Financial Market Problems
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Joint liability: group lending, guarantors
Stepped lending and repeat loans
Character and cash-flow based lending
Flexible approaches to collateral
“Mandatory” and “voluntary” savings products
Non-financial services
Reading:
(*)
Armendáriz de Aghion, Beatriz, and Jonathan Morduch. 2005. The
Economics of Microfinance. Cambridge, MA and London: The MIT
Press, 89-142.
(o)
Ghatak, Maitreesh, and Timothy Guinnane. 1999. “The Economics of
Lending with Joint Liability: Theory and Practice”. Journal of
Development Economics 60: 195-228.
(o)
Ledgerwood, Joanna, and Julie Earne. 2013. “Chapter 9. Credit”. In
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The New Microfinance Handbook. A Financial Market System
Perspective, edited by Joanna Ledgerwood et al., 213-229.
Washington, D.C: The World Bank.
(*)
Robinson, Marguerite S. 2001. The Microfinance Revolution.
Sustainable Finance for the Poor. Volume 1. Washington, D.C. and
New York: The World Bank and Open Society Institute, 162-166.
(o)
SDC. Insurance for smallholder farmers and vulnerable households
against catastrophic events Guiding principles for donors and
governments, Berne: Swiss Agency for Development and
Cooperation, 2014.
Part II: Assessing Microfinance Service Providers, in Particular Microfinance
Institutions (MFIs)
Wednesday 8 October 2014
Institutional Factors: Governance, Ownership and Legal Form of MFIs
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The importance of institutions
Introduction to the process and tools of institutional assessments for MFIs
Types of financial institutions offering microfinance services
Strategic decisions in ownership, capital structure, and governance
Governance during expansion, growth and transformation
Reading:
(*)
CGAP. 2008. Appraising Microfinance Institutions. Washington, D.C.:
CGAP Brief.
(o)
Fundactión Microfinanzas BBVA. 2011. Guide for the Adoption of
good governance principles in microfinance institutions. Madrid:
Fundactión BBVA.
(*)
Labie, Marc, and Roy Mersland. 2011. “Corporate Governance
Challenges in Microfinance”. In The Handbook of Microfinance edited
by Beatriz Armendáriz and Marc Labie, 283-298. Singapore: World
Scientific.
(o)
McConaghy, Peter. 2013. “Chapter 15. Governance and Managing
Operations”. In The New Microfinance Handbook. A Financial Market
System Perspective, edited by Joanna Ledgerwood et al., 351-355, 364376. Washington, D.C: The World Bank.
(o)
Mersland, Roy, and R. Østein Strøm. 2009. “Performance and
Governance in Microfinance Institutions”. Journal of Banking and
Finance 33: 662-669.
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Cases (Handouts):
(*)
VISION, Part I
(*)
HKL, Part I
Wednesday 15 October 2014
No class on Wednesday 15 October 2014!
Wednesday 22 October 2014
The People and Market Factors:
Leadership and Human Resources Management, Managing Products & Services and
Risks
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The importance of leadership and organizational structures
Adequate human resources policies
Business planning in MFIs
Market research and product development
Outreach and competition
Managing operational and credit risks
Reading:
(o)
Campion, Anita. 2000. Improving Internal Control. A Practical
Guide for Microfinance Institutions. Microfinance Network with
GTZ, Technical Guide No.1.
(o)
Galema, Rients, Robert Lensink, and Roy Mersland. 2012. “Do
Powerful CEOs have an Impact on Microfinance Performance?”
Journal of Management Studies 49 (4): 718–742.
(o)
Holtmann, Martin. 2001. “Designing Financial Incentives to Increase
Loan Officer Productivity: Handle with Care!” MicroBanking
Bulletin 6: 5-10.
(o)
McConaghy, Peter. 2013. “Chapter 15. Governance and Managing
Operations”. In The New Microfinance Handbook. A Financial Market System Perspective, edited by Joanna Ledgerwood et al., 355364. Washington, D.C: The World Bank.
(*)
Stuart, Guy. 2011. “Microfinance – A Strategic Management
Framework”. In The Handbook of Microfinance, edited by Beatriz
Armendáriz and Marc Labie, 251-266. Singapore: World Scientific.
Cases (Handouts):
(*)
VISION, Parts II and III
(*)
HKL, Parts II and III
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Wednesday 29 October 2014
Financial Factors: Analyzing and Managing Financial Performance of MFIs
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Analyzing financial statements
Financial performance ratios
Selected aspects of managing financial performance and risks: efficiency and
productivity; liquidity and capital adequacy; asset and liability management
Benchmarking
Rating MFIs
Reading:
(o)
Balkenhol, Bernd, and Marek Hudon. 2011. “Efficiency”. In The
Handbook of Microfinance, edited by Beatriz Armendáriz and Marc
Labie, 383-396. Singapore: World Scientific.
(o)
Cull, Robert, Asli Demirgüç-Kunt, and Jonathan Morduch. 2009.
“Microfinance Meets the Market”. Journal of Economic Perspectives 23
(1): 167–192.
(*)
Ledgerwood, Joanna et al. 2013. “Chapter 14. Monitoring and Managing
Financial and Social Performance”. In The New Microfinance Handbook.
A Financial Market System Perspective, edited by Joanna Ledgerwood et
al., 321-341. Washington, D.C: The World Bank.
(o)
Microfinance Information eXchange (the Mix). 2011. “Defining
responsible financial performance” article series (How to think about
growth; The role of profits; Understanding efficiency; How to think about
social performance). MicroBanking Bulletin, May – June.
(o)
CGAP. 2003. Definitions of Selected Financial Terms, Ratios, and
Adjustments for Microfinance. Washington, D.C.: CGAP Consensus
Guidelines.
Cases (Handouts):
(*)
VISION Part IV
(*)
HKL Part IV
Wednesday 5 November 2014
Financial Factors: Analyzing and Managing Financial Performance of MFIs
(continued)
Social Performance Measurement and Impact Assessments
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Why measuring social performance and impact?
What do we know about the impact of microfinance?
Methodological aspects of social performance measurements and impact assessments
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Common sets of indicators used in practice
A closer look at selected tools and studies
Reading:
(o)
Adams, Dale W., and Vogel, Robert C. 2013. “Through the Thicket of
Credit Impact Assessements”. In Microfinance in Developing Countries:
Issues, Policies and Performance Evaluation, edited by Gueyie, J.P.,
Manos, R., and Yaron, J., 36-61, Palgrave Macmillan.
(o)
Armendáriz de Aghion, Beatriz, and Jonathan Morduch. 2005. The
Economics of Microfinance. Cambridge, MA and London: The MIT
Press, 199-224.
(*)
Bédécarrats, Florent, and Lapenu, Cécile. 2013. “Assessing Microfinance:
Striking Balance Between Social Utility and Financial Performance”. In
Microfinance in Developing Countries: Issues, Policies and Performance
Evaluation, edited by Gueyie, J.P., Manos, R., and Yaron, J., 62-82,
Palgrave Macmillan.
(o)
Cull, Robert, Asli Demirguc-Kunt, and Jonathan Morduch. 2007.
“Financial performance and outreach: A global analysis of lending
microbanks”. Economic Journal 117: F107-F133.
(o)
Koning, Antonique, and L. Wardle. “Embedding Social Performance
Management in Financial Service Delivery“, Washington, D.C.,
CGAP Brief, May 2014.
(*)
Ledgerwood, Joanna et al. 2013. “Chapter 14. Monitoring and
Managing Financial and Social Performance”. In The New Microfinance Handbook. A Financial Market System Perspective, edited by
Joanna Ledgerwood et al., 341-349. Washington, D.C: The World
Bank.
(o)
Social Performance Task Force. 2012. Universal Standards for Social
Performance Management. [online at http://sptf.info/spstandards1]
Part III Policies to Build Inclusive Financial Systems
Wednesday 12 November 2014
Microfinance Macro and Meso Policy Issues and Choices
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Macro effects of microfinance
Financial systems levels and microfinance
The role of governments in microfinance; national microfinance policies
Institutions at the meso level: networks, credit reference bureaus, rating agencies
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Reading:
(*)
Ahlin, Christian, Jocelyn Lin, and Michael Maio. 2011. “Where does
microfinance flourish? MFI Performance in macroeconomic context”.
Journal of Development Economics 95 (2): 105-120.
(o)
Barr, Michael S. 2007. “Government Policies to Expand Financial Access”.
In Building Inclusive Financial Systems. A Framework for Financial Access,
edited by Michael S. Barr, Anjali Kumar, and Robert E. Litan, 143-174.
Washington, C.C.: Brookings Institution Press.
(*)
CGAP. 2004. The Role of Governments in Microfinance. Washington, D.C.:
CGAP Donor Brief No. 19.
(o)
Hermes, Niels, Robert Lensink, and Aljar Meesters. 2011. “Financial
Development and the Efficiency of Microfinance Institutions”. World
Development 39 (6): 875-881.
(o)
United Nations. 2006. Building Inclusive Financial Sectors for Development.
New York: United Nations, 93-118; 139-162.
(o)
Porteous, David. 2006. Competition and Microcredit Interest Rates.
Washington, D.C.: CGAP Focus Note No. 33.
Case (Handout):
(*)
Expanding Access to Financial Services in Malawi, by Kiendel Burritt
(excerpts)
Wednesday 19 November 2014
Microfinance Regulation and Supervision
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When is microfinance regulation and supervision needed?
Key principles of microfinance regulation and supervision
Regulatory issues from the MFI’s perspective
Reading:
(*)
Rosengard, Jay K. 2011. „Oversight is a Many-Splendored Thing: Choice
and Proportionality in Regulating and Supervising Microfinance
Institutions“. In The Handbook of Microfinance, edited by Beatriz
Armendáriz and Marc Labie, 159-171. Singapore: World Scientific.
(o)
Basel Committee on Banking Supervision. 2010. Microfinance activities and
the Core Principles for Effective Banking. Basle: Bank for International
Settlements. [online at http://www.bis.org/publ/bcbs175.htm]
(*)
CGAP. 2012. . Guide to Regulation and Supervision in MicrofinanceGuiding
Principles on Regulation and Supervision of Microfinance. Washington,
D.C.: CGAP Microfinance Consensus Guidelines.
(o)
Peck Christen, Robert, and Richard Rosenberg. 2000. The Rush to Regulate:
Legal Frameworks for Microfinance. Washington, D.C.: CGAP Occasional
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Paper No. 4.
(o)
Hartarska, Valentina, and DenisNadolnyak. 2007. “Do regulated
microfinance institutions achieve better sustainability and outreach? Crosscountry evidence”. Applied Economics 39: 1207-1222.
Case (Classroom material):
Uganda
Part IV: Financing Microfinance - Trends in Commercializing Markets
Wednesday 26 November 2014
The Role of Subsidies and Donors
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Subsidizing microfinance: why or why not, what, and how
Measuring subsidy dependence
Traditional microfinance donors and instruments
The growing involvement of socially responsible investors in microfinance
“Capacity leads, capital follows”: success factors, do’s and don’ts of subsidizing
microfinance in practice
Reading:
(o)
Abrams, Julie, and Damian von Stauffenberg. 2007. Role Reversal: Are
Public Development Institutions Crowding Out Private Investment in
Microfinance? Arlington, VA: MicroRate MFInsights.
(*)
Armendáriz de Aghion, Beatriz, and Jonathan Morduch. 2005. The
Economics of Microfinance. Cambridge, MA and London: The MIT Press,
231-255.
(o)
CGAP. 2006. Good Practice Guidelines for Funders of Microfinance.
Washington, D.C.: CGAP.
(o)
El-Zoghbi, Mayada, Barbara Gahwiler, and Kate Lauer. 2011. Crossborder Funding of Microfinance. Washington, D.C.: CGAP Focus Note
No. 70.
(o)
Stauffenberg, Damian von, and Daniel Rozas. 2011. Role Reversal
Revisited: Are Public Development Institutions Still Crowding Out Private
Investment in Microfinance? Arlington, VA: MicroRate.
Case (Handout):
(*)
Capacity Leads, Capital Follows and When There Was No Money:
ACLEDA, Cambodia, by Heather Clark (excerpts)
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Wednesday 3 December 2014
Socially Responsible and Commercial Microfinance Investments
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Socially responsible investors and commercial investors: Equity and debt financing
options
Microfinance investment funds and microfinance investment vehicles
Mission drift through commercialization?
Reading:
(o)
CSFI. 2014. Microfinance Banana Skins 2014. The CSFI survey of microfinance
risk. Facing Reality. London: Centre for the Study of Financial Innovation.
(o)
Glisovic, Jasmina, and Louise Moretto. 2012. How Have Market Challenges
Affected Microfinance Investment Funds? Washington, D.C.: CGAP Brief.
(o)
Pouliot, Robert. 2005. “Governance, Transparency and Accountability in the
Microfinance Investment Fund Industry”. In Microfinance Investment Funds.
Leveraging Private Capital for Economic Growth and Poverty Reduction. , edited
by Ingrid Matthäus-Meier and J.D. von Pischke, 147-174. Berlin, Heidelberg,
New York: Springer.
(*)
Reille, Xavier, and Dan Rozas. 2011. Foreign Capital Investment in
Microfinance: Reassessing Financial and Social Returns. Washington, D.C.:
CGAP Focus Note No. 71.
Case (Handout):
(*)
Compartamos
Wednesday 10 December 2014
Financial Market Instruments for Commercial Microfinance
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Commercial institutions and the choice and valuation of equity
Portfolio diversification through microfinance?
Trends in a changing environment
Reading:
(o)
Galema Rients, Robert Lensink, and Laura Spierdijk. 2011. “International
diversification and Microfinance”. Journal of International Money and
Finance 30: 507-515.
(*)
MicroRate. The State of Microfinance Investment 2013. The MicroRate MIV
Survey 2011. Arlington, VA: MicroRate MFInsights.
(o)
O’Brian, Barclay. 2006. “Valuing Microfinance Institutions”. Savings and
Development (Fondazione Giordano dell’Amore) 4: 274-296.
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(*)
Symbiotics. Microfinance Investments. The 2013 Symbiotics MIV Survey.
Geneva: Symbiotics.
(o)
Walter, Ingo, and Nicolas Krauss. 2009. “Can Microfinance Reduce Portfolio
Volatility?” Economic Development and Cultural Change 58 (1): 85-110.
Wednesday 17 December 2014
Challenges and Burning Questions
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Current challenges in microfinance
Burning questions
Expanding the frontiers of microfinance
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