Microfinance as a Mechanism against Financial Exclusion in the European Rural Areas – an Inspiration for the Czech Republic

Abstract

One of the factors infuencing the emergence of disparities between rural and urban regions is the varying level of financial inclusion of the population. The system of microfinancing is becoming an important mechanism against poverty and social exclusion in Europe. However, there is available very limited legal, regulatory and historical information on the microfinance system in the Czech Republic. As a result, microfinance institutions are absent and small entrepreneurs tend to use expensive consumer credit products, thereby increasing the risk of over-indebtedness. The aim of this research is to examine the repayment performance of the European microfinance institutions with increased share of clients from rural areas. Based on an empirical statistical analysis of an unique European microfinance institutions' database, we are presenting evidence that suggests that microfinance systems perform better in rural than in urban areas. This finding is strongly recommended for consideration in the development of policies to guide legal frameworks regarding microfinancing.
Keywords Microfinancing industry, quality of portfolio, rural economic development, social capital.