Partnerships between microfinance institutions and formal banks: a case study in Cambodia and Australia
Author(s)Padmaperuma, Don Chandima
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Abstract© 2019 Don Chandima Padmaperuma
Partnerships between microfinance institutions (MFIs) and banks are scarce phenomena. The available literature is scant and academic understanding is limited. This thesis, therefore, endeavours to better understand microfinance partnerships between MFIs and banks by examining partnership microfinance in Cambodia and Australia.
Notwithstanding the fact that microfinance is a contested development tool within the repertoire of development strategies, it is accepted that there are conspicuous grass-root level pragmatic benefits for economically active poor; chief among them is access to financial services and empowerment. The vulnerable segments of the society are otherwise neglected by the traditional banking system in both the developing and developed countries. The expansion of microfinance services is imperative for inclusive economic development in a post-conflict developing county like Cambodia with the significant rurally dispersed populace. Similarly, in the case of Australia, increasing the financial inclusion supporting the eradication of relative poverty that persists is imperative- particularly as an ethical alternative for predatory lenders such as payday lenders and consumer lease operators. Therefore, the demand for microfinance services is conspicuous. Nevertheless, MFIs universally are faced with the triumvirate challenges, i.e. increasing the outreach; maintaining sustainability, and ensuring the impact. Expansion and sustainability are dependent upon the available resources, including capital and an ability to reduce costs while generating income. In this context partnership with resource-rich banks, provide plausible mechanisms to address the challenges of outreach and sustainability for MFIs.
The research examined the motivations of the respective partners to establish microfinance partnerships, followed by a comprehensive exploration of the efficacy of each partnership model. In the case of Cambodia, the partnership was driven by commercial needs. Moreover, it is the first such partnership in the country, linking informal and formal sector financial institutions, hence considered as an important milestone in the financial sector landscape. The genesis of the Australian case centered on the fundamentals Corporate Social Responsibly (CSR). Not only the models are unique, but also possess their own dynamics. The challenges of the partnership were examined followed by success factors. The partnerships formed were based on the symbiotic benefits, nevertheless, profoundly more beneficial to MFIs than to banks. Microfinance partnership facilitated the increase in outreach and sustainability of MFIs. Additionally, transfer of knowledge from banks and capacity building are complementary benefits accrued to MFIs.
The cases studied are positioned in two different phases of the partnership cycle; Cambodian partnership is at the formation stage and the Australian partnership is at the maturity stage. Moreover, each case represents developing and developed country contexts, respectively. Therefore, understanding of the partnerships examined in this research provides a broader knowledge of microfinance partnerships. The models of partnerships are also replicable. Furthermore, microfinance partnership can be espoused and promoted to increase the financial inclusion and access to financial services to poor people facilitating increase in the standard of living in both developing and developed world. Therefore, this thesis contributes to the inclusive and sustainable development proposition through partnerships.