In remote rural areas, usually the only form of viable microfinance is some form of community-managed loan fund (CMLF). Professionally managed MFIs usually provide more secure, well-managed services, but their higher running costs prevent them from operating in many rural areas where CMLFs can succeed. This article, drawing on a review of the performance of many CMLF projects established by donors and NGOs, finds that their success or failure is linked to the source of their funds, and also to the quality of external support they receive. It finds that most CMLFs that rely on external funding from the start fail. The article concludes with implications for development agencies that support CMLFs.
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