WHY does commercial microfinance work?

Poor people around the world produce very high marginal returns on capital, and need financial services to exploit these opportunities.
The high cost of capital in the developing world (20-100% APR), the high demand for credit, and the low cost of labor, make transaction-intensive microfinance quite profitable if done right. Moreover, due to the low delinquency and default rates on micro-loans, the (elite few) high-performing microlenders’ earnings are stable and strong (ROA of 3-8%). There are numerous other factors that also make the industry attractive, including low systematic risk, low volatility, and strong diversification of micro-loan portfolios (Source: Blue Orchard). Of course, there are many significant risks as demonstrated by the fact that only 3% of microlenders around the world actually turn a profit.