The Microfinance Approach: Does It Deliver on Its Promise?

  • Eva Terberger
Open Access


Microfinance, formerly celebrated as a most successful development tool, has been confronted with harsh criticism in recent years. It is claimed to have contributed to clients’ over-indebtedness while having failed to deliver on its promise of reducing poverty. By reviewing recent evidence, this paper aims for a more realistic assessment of the microfinance approach. It is argued that borrowing always goes along with risk. Accordingly, the danger of over-indebtedness can be ameliorated by responsible finance practices, but never eliminated. Nevertheless, microfinance deserves its place as a development tool. Even if positive impacts are much smaller than claimed in the past, the impact stream is able to flow for as long as the microfinance supplier survives. As there is proof that temporary support can build sustainable institutions, the cost-benefit ratio still seems to speak in favour of the microfinance approach.


Venture Capital Downside Risk Microfinance Institution Initial Public Offer Repayment Rate 
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© The Author(s) 2013

This chapter is distributed under the terms of the Creative Commons Attribution Noncommercial License, which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.

Authors and Affiliations

  • Eva Terberger
    • 1
  1. 1.Mannheim/FrankfurtGermany

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