October 27

Friend or Foe to the World’s Poor? Settling the Microfinance Debate

Since coming into the spotlight in the early 1980s, microfinance has undeniably grown into a sizeable global industry estimated to exceed $180 billion USD and serve about 200 million customers. Over this decades-long trajectory, microfinance institutions have achieved financial sustainability; they have diversified their offering beyond credit while serving many customer segments, and industry leaders have embraced the digital age. This evolution has captivated the financial inclusion community in many ways (see for example Brookings Institute review of the state of the industry) but none so much as what such changes have meant for the poorest customers the industry intends to serve.

Two stubbornly unresolved debates keep casting doubt on how much benefit microfinance brings to its customers and fuel what seems like a never-ending cycle of support and criticism for the industry. Here, we propose ways to resolve persistent knowledge gaps that perpetuate these debates about microfinance, which are also relevant for the broader financial inclusion community.

Photo courtesy of UN Women.

Source: CGAP (link opens in a new window)

financial inclusion, microfinance