Development Finance As Institution Building: A New Approach To Poverty-oriented Banking

This study compares the different ways in which financial services in developing countries are provided to poor target groups, such as small and micro-scale businesses, small farmers, and women. It argues that building sustainable and target group-oriented financial institutions is important and feasible, but that information and incentive problems can be addressed and overcome. It draws extensively on the conceptual tools of the new economics of information and institutions to examine real-world cases of institution building and demonstrates how information and institution economics can be put into practice. Development Finance as Institution Building has far-reaching implications for development policy and the design of aid programs.

Format: Hardback
Length: 174 pages
Publication date: 30 June 2022
Publisher: Taylor & Francis Ltd

This timely analysis delves into the diverse approaches employed to provide financial services to marginalized and disadvantaged populations in developing countries, who are largely excluded from formal financial systems. The authors argue that the establishment of sustainable and tailored financial institutions is crucial and feasible, with the potential to yield more significant developmental outcomes compared to the direct allocation of external funds to these target groups. However, the provision of financial services to the poor and the efforts involved in institution-building face significant challenges related to information and incentives. Addressing and overcoming these challenges is at the core of the authors' analysis. Drawing extensively from the conceptual frameworks of the new economics of information and institutions, Krahnen and Schmidt examine real-world cases of institution building. They explore formal and informal financial institutions, including group lending, rotating savings and credit associations (RoSCAs), and financial cooperatives, and demonstrate how information and institution economics can be applied in practice. Development Finance as Institution Building holds profound implications for development policy and the design of aid programs. It is an essential read for development specialists, policymakers, and scholars of development finance and international banking. This study was prepared on behalf of and with the support of the International Labour Office (ILO), as part of a broader program aimed at exploring the connections between finance and poverty reduction.

ISBN-13: 9780367009977