Financial Innovation in Retail and Corporate Banking
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Financial Innovation in Retail and Corporate Banking

Edited by Luisa Anderloni, David T. Llewellyn and Reinhard H. Schmidt

This valuable book discusses in detail, through a blend of theory and empirical research, the processes of innovation and the diffusion of new financial instruments.
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Chapter 3: Microfinance, Innovations and Commercialisation

Reinhard H. Schmidt


3. Microfinance, innovations and commercialisation Reinhard H. Schmidt THE MOTIVATION AND THE STRUCTURE OF THE CHAPTER 1 The Nobel Peace Prize of 2006 was awarded to the Grameen Bank in Bangladesh and its founder Professor Mohammad Yunus. What Yunus and his Grameen Bank – as well as a number of other microfinance institutions (MFIs) and their leaders – have achieved over the past 30 years not only deserves great respect for its political ambitions and its social and economic effects, but also has to be regarded as one of the most important and most interesting innovations in finance. Its hallmark is making credit and other financial services available to people who have so far not had access to formal finance. To use the expression coined by J.D. Von Pischke, these microfinance pioneers succeeded in ‘shifting the frontier of finance’ to territories into which formal financial institutions had so far not ventured to go.1 This chapter discusses microfinance as a financial innovation. A common classification distinguishes between product innovations, that is, doing new things, and process innovations, that is, doing certain things in a way not known or at least not used before. Microfinance as we know it today is the outcome of a combination of product and process innovations. Its most visible part is a product innovation: finance for the poor and especially for poor self-employed people.2 However, a rapid succession of process innovations has made it possible for small loans to be offered...

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