Microfinance: Getting Money To the Poor or Making Money Out Of the Poor?

Read the beginning of the text

Microfinance institutions are currently experiencing very high repayment rates of between 95-99%. Coupled with growing loan sizes by clients, these institutions are even making profits. No wonder there seems to be a good reason for the world to celebrate the microfinance revolution. It is not necessarily wrong to reduce poverty and make some money on the side. The question however arises as to whether that is indeed what is happening with microfinance.

What is microfinance and what does it promise

R. P. Christen (1997) defines microfinance as the means of providing a variety of financial services to the poor, based on market-driven and commercial approaches. These services may include savings, insurance, money transfers and credit. However the microfinance movement to date has generally favoured microcredit, which is the provision of small loans to households who are perceived to be too poor to qualify for loans from formal financial institutions. This essay mainly discusses microfinance to these very poor clients who cannot even borrow as individuals, but must borrow through a joint liability group.

Download the essay