CHAPTER 3The Microfinance Value Chain

Photo showing a man's hands spread a few currency notes like a fan. Another man's hand is seen touching one of the notes.

Give a man a fish, [and] he'll eat for a day. Give a woman microcredit, [and] she, her husband, her children, and her extended family will eat for a lifetime.

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Highly specialized protagonists along the value chain of microfinance ensure an efficient distribution of the financial means to the various micro entrepreneurs.

Everyone involved, from investor to micro entrepreneur, is subject to supervision or is at least affected by this supervision in one way or another.

3.1 THE PROTAGONISTS AND THEIR TASKS

The microfinance sector has become professionalized over the years, which is amply reflected in the fragmentation of the value chain in highly specialized protagonists. Specialization of the different service providers along the value chain efficiently allocates financial means and at the same time raises the overall quality of the services on each and every level of the value added.

The value chain of microfinance typically consists of four levels (see Figure 3.1). Funds provided by the investors are bundled into fund structures to be supervised by a microfinance administrator. The administrator identifies, analyzes, selects and consequently supervises those MFIs that are the recipients of equity or debt capital. The MFIs in turn are in charge of issuing microloans to their clients and therefore perform all the associated actions. ...

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