The Microfinance Approach: Does It Deliver on Its Promise?
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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.
KeywordsVenture Capital Downside Risk Microfinance Institution Initial Public Offer Repayment Rate
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