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The 1980s saw the emergence of informal finance. Over the last few years, the developing world in Africa, Asia, and Latin America has witnessed the appearance and growth of microfinance. This paper examines the reasons behind this evolution and the rise and growing power of microfinance institutions. The paper analyses some of the problems created by these new institutions, including the type of regulatory framework to impose on them, their possible relationship with established banks, and their role within existing financial systems.