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For more details on this topic, see "Impact of microcredit.

The impact of microcredit is a subject of much controversy. Proponents state that it reduces poverty through higher employment and higher incomes. This is expected to lead to improved nutrition and improved education of the borrowers' children. Some argue that microcredit empowers women. In the US and Canada, it is argued that microcredit helps recipients to graduate from welfare programs.

Critics say that microcredit has not increased incomes, but has driven poor households into a debt trap, in some cases even leading to suicide. They add that the money from loans is often used for durable consumer goods or consumption instead of being used for productive investments, that it fails to empower women, and that it has not improved health or education. Moreover, as the access to micro-loans is widespread, borrowers tend to acquire several loans from different companies, making it nearly impossible to pay the debt back.[58] As a result of such tragic events, microfinance institutions in India have agreed on setting an interest rate ceiling of 15 percent.[59] This is important because microfinance loan recipients have a higher level of security in repaying the loans and a lower level of risk in failing to repay them.

The available evidence indicates that in many cases microcredit has facilitated the creation and the growth of businesses. It has often generated self-employment, but it has not necessarily increased incomes after interest payments. In some cases it has driven borrowers into debt traps.["citation needed] There is no evidence that microcredit has empowered women. In short, microcredit has achieved much less than what its proponents said it would achieve, but its negative impacts have not been as drastic as some critics have argued. Microcredit is just one factor influencing the success of small businesses, whose success is influenced to a much larger extent by how much an economy or a particular market grows. For example, local competition in the area of lack of a domestic markets for certain goods can influence how successful small businesses who receive microcredit are.["citation needed]

Mission Drift in Microfinance[edit]

Mission drift refers to the phenomena through which the MFIs or the micro finance institutions increasingly try to cater to customers who are better off than their original customers, primarily the poor families. Roy Mersland and R. Øystein Strøm in their research on Mission Drift suggest that this selection bias can come not only through an increase in the average loan size, which allows for financially stronger individuals to get the loans, but also through MFI's particular lending methodology, main market of operation, or even the gender bias as further mission drift measures.[60] And as it may follow, this selective funding would lead to lower risks and lower costs for the firm.

However, economists Beatriz Armendáriz and Ariane Szafarz suggests that this phenomenon is not driven by cost minimization alone. She suggests that it happens because of the interplay between the company’s mission, the cost differential between poor and unbanked wealthier clients and region specific characteristics pertaining the heterogeneity of their clientele.[61] But in either way, this problem of selective funding leads to an ethical tradeoff where on one hand there is an economic reason for the company to restrict its loans to only the individuals who qualify the standards, and on the other hand there is an ethical responsibility to help the poor people get out of poverty through the provision of capital.

Role of foreign donors[edit]

The role of donors has also been questioned. CGAP recently commented that "a large proportion of the money they spend is not effective, either because it gets hung up in unsuccessful and often complicated funding mechanisms (for example, a government apex facility), or it goes to partners that are not held accountable for performance. In some cases, poorly conceived programs have retarded the development of inclusive financial systems by distorting markets and displacing domestic commercial initiatives with cheap or free money."[62]

Working Conditions in Enterprises Affiliated to MFIs[edit]

There has also been criticism of microlenders for not taking more responsibility for the working conditions of poor households, particularly when borrowers become quasi-wage labourers, selling crafts or agricultural produce through an organization controlled by the MFI. The desire of MFIs to help their borrower diversify and increase their incomes has sparked this type of relationship in several countries, most notably "Bangladesh, where hundreds of thousands of borrowers effectively work as wage labourers for the marketing subsidiaries of "Grameen Bank or "BRAC. Critics maintain that there are few if any rules or standards in these cases governing working hours, holidays, working conditions, safety or child labour, and few inspection regimes to correct abuses.[63] Some of these concerns have been taken up by "unions and "socially responsible investment advocates.


In Nigeria cases of fraud have been reported. Dubious banks promised their clients outrageous interest rates. These banks were closed shortly after clients had deposited money and their deposits were lost. The officials of Nigeria Deposit Insurance Corporation (NDIC) have warned customers about so-called "wonder banks".[64] One initiative to prevent people from depositing money to wonder banks is the mini-series "e go better" that warns about the practices of these wonder banks.[65]

See also[edit]


  1. ^ Robert Peck Christen, Richard Rosenberg & Veena Jayadeva. "Financial institutions with a "double-bottom line: implications for the future of microfinance. "CGAP Occasional Paper, July 2004, pp. 2-3.
  2. ^ Feigenberg, Benjamin; Erica M. Field; Rohan Pande. "Building Social Capital Through MicroFinance". NBER Working Paper No. 16018. Retrieved 10 March 2011. 
  3. ^ Rutherford, Stuart; Arora, Sukhwinder (2009). The poor and their money: micro finance from a twenty-first century consumer's perspective. Warwickshire, UK: Practical Action. p. 4. "ISBN "9781853396885. 
  4. ^ Hermes, N. (2014). Does microfinance affect income inequality? Applied Economics, 46(9), 1021-1034. doi:10.1080/00036846.2013.864039
  5. ^ Khandker, Shahidur R. (1999). Fighting poverty with microcredit: experience in Bangladesh. Dhaka, Bangladesh: The University Press Ltd. p. 78. "ISBN "9789840514687. 
  6. ^ Wright, Graham A. N.; Mutesasira, Leonard K. (September 2001). "The relative risks to the savings of poor people". Small Enterprise Development. Practical Action Publishing. 12 (3): 33–45. "doi:10.3362/0957-1329.2001.031. 
  7. ^ MacFarquhar, Neil (2010-04-13). "Banks Making Big Profits From Tiny Loans". The New York Times. 
  8. ^ "Kiva Help - Interest Rate Comparison". Retrieved October 10, 2009. 
  9. ^ "About Microfinance". Kiva. Retrieved 2014-06-11. 
  10. ^ Geoffrey Muzigiti; Oliver Schmidt (January 2013). "Moving forward". D+C Development and Cooperation/ 
  11. ^ "Microfinance: Do the micro-loans contribute to the well-being of the people or do they leave them even poorer due to high interest rates?". Quora. Retrieved 2014-06-11. 
  12. ^ Roodman, David. "Due Diligence: An Impertinent Inquiry Into Microfinance." Center for Global Development, 2011.
  13. ^ Istazk, Lennon (4 July 2014). "Alles over een Klein Bedrag Lenen.". Klein bedrag lenen. Retrieved 11 January 2017. 
  14. ^ Katic, Gordon (2013-02-20). "Micro-finance, Lending a Hand to the Poor?". Retrieved 2014-06-11. 
  15. ^ Blyden, Sylvia. "BRAC ranked number one NGO in the world: Sierra Leone News". Retrieved 2017-01-11. 
  16. ^ "Brac ranks world's number one NGO | Dhaka Tribune". Retrieved 2017-01-11. 
  17. ^ Microfinance Information Exchange, Inc. (2007-08-01). "MicroBanking Bulletin Issue #15, Autumn, 2007, pp. 46,49". Microfinance Information Exchange, Inc. Retrieved 2010-01-15. 
  18. ^ McKenzie, David (2008-10-17). "Comments Made at IPA/FAI Microfinance Conference Oct. 17 2008". Philanthropy Action. Retrieved 2008-10-17. 
  19. ^ Bruton,Chavez & Khavul, G.D.,H. & S. (2011). "Microlending in emerging economies:building a new line of inquiry from the ground up". Journal of International Business Studies. 42 (5): 718–739. 
  20. ^ Bee, Beth (2011). "Gender, solidarity and the paradox of microfinance: Reflections from Bolivia". Gender, Place & Culture. 18 (1): 23–43. 
  21. ^ Ly & Mason, P. & G. (2012). "Individual preference over development projects:evidence from microlending on Kiva". Voluntas: International Journal of Voluntary and Non-Profit Organizations. 23 (4): 1036–1055. 
  22. ^ Allison, Davis, Short & Webb, T.H.,B.C.,J.C., & J.W. (2015). "Crowdfunding in a prosocial microlending environment: examining the role of intrinsic versus extrinsic cues". Entrepreneurship. 39 (1): 53–73. 
  23. ^ a b Helms, Brigit (2006). Access for All: Building Inclusive Financial Systems. "Washington, D.C.: "The World Bank. "ISBN "0-8213-6360-3. 
  24. ^ [1] Archived December 14, 2011, at the "Wayback Machine.
  25. ^ [2] Archived August 10, 2007, at the "Wayback Machine.
  26. ^ Helms (2006), p. xi
  27. ^ a b c Helms (2006), p. xii
  28. ^ Robert Peck Christen, Richard Rosenberg & Veena Jayadeva. Financial institutions with a double-bottom line: implications for the future of microfinance. CGAP Occasional Paper, July 2004.
  29. ^ MFW4A - Microfinance (2010-11-05). "MFW4A - Microfinance". 
  30. ^ Christen, Rosenberg & Jayadeva. Financial institutions with a double-bottom line, pp. 5-6
  31. ^ Microfinance Information Exchange, Inc. (2009-12-01). "MicroBanking Bulletin Issue #19, December 2009, pp. 49". Microfinance Information Exchange, Inc. 
  32. ^ Global microscope on the microfinance business environment 2011: an index and study by the Economist Intelligence Unit (pdf) (Report). "Economist Intelligence Unit Ltd. 2011. 
  33. ^ "Latin America tops Global Microscope Index on the microfinance business environment 2011". IDB. Retrieved June 19, 2012. 
  34. ^ "Global Microscope on the Microfinance Business Environment 2011". IDB. Retrieved June 19, 2012. 
  35. ^ See for example Joachim de Weerdt, Stefan Dercon, Tessa Bold and Alula Pankhurst, Membership-based indigenous insurance associations in Ethiopia and Tanzania For other cases see "ROSCA. Archived July 10, 2010, at the "Wayback Machine.
  36. ^ "FDIC: 2011 FDIC National Survey of Unbanked and Underbanked Households". 2012-12-26. Retrieved 2014-06-11. 
  37. ^ a b c d Pollinger, J. Jordan; Outhwaite, John; Cordero-Guzmán, Hector (1 January 2007). "The Question of Sustainability for Microfinance Institutions". Journal of Small Business Management. 45 (1): 23–41. "doi:10.1111/j.1540-627X.2007.00196.x. 
  38. ^ Hedgespeth, Grady. "SBA Information Notice" (PDF). SBA. 
  39. ^ "Registered Charities: Community Economic Development Programs". Archived from the original on December 6, 2005. 
  40. ^ a b c d Alterna (2010). "Strengthening our community by empowering individuals.". 
  41. ^ a b Harman, Gina (2010-11-08). "PM BIO Become a Fan Get Email Alerts Bloggers' Index How Microfinance Is Fueling A New Small Business Wave". Huffington Post. 
  42. ^ Reynolds, Chantelle; Christian Novak (May 19, 2011). "Low Income Entrepreneurs and their Access to Financing in Canada, Especially in the Province of Quebec/City of Montreal". 
  43. ^ See for example Cheryl Frankiewicz Calmeadow Metrofund: a Canadian experiment in sustainable microfinance, Calmeadow Foundation, 2001.
  44. ^ "Road to redemption". The Economist. "ISSN 0013-0613. Retrieved 2016-09-13. 
  45. ^ Top Microfinance Institutions in India for 2014 CRISIL Report, June 2014.
  46. ^ Kar, S. (2013). Recovering debts: Microfinance loan officers and the work of "proxy-creditors" in India. Journal of the American Ethnological Society, 40(3), 480-493. doi:10.1111/amet.12034
  47. ^ Brigit Helms. Access for All: Building Inclusive Financial Systems. CGAP/World Bank, Washington, 2006, pp. 35-57.
  48. ^ "''State of the Microcredit Summit Campaign Report 2007'', Microcredit Summit Campaign, Washington, 2007.". 2006-12-31. Retrieved 2011-03-25. 
  49. ^ Turner, Michael, Robin Varghese, et al. Information Sharing and SMME Financing in South Africa, Political and Economic Research Council (PERC), p58.
  50. ^ "Zidisha Set to "Expand" in Peer-to-Peer Microfinance", Microfinance Focus, Feb 2010 Archived October 8, 2011, at the "Wayback Machine.
  51. ^ Microfinance: An emerging investment opportunity. Deutsche Bank Research. December 19, 2007.
  52. ^ Waterfield, Chuck. Why We Need Transparent Pricing in Microfinance. MicroFinance Transparency. 11 November 2008. Archived March 25, 2009, at the "Wayback Machine.
  53. ^ Kim, J.C., Watts, C. H., Hargreaves, J. R., Ndhlovu, L. X., Phetla, G., Morison, L. A., et al. (2007). Understanding the impact of a microfinance-based intervention of women's empowerment and the reduction of intimate partner violence in South Africa. American Journal of Public Health.
  54. ^ "Smith, Stephen C. (April 2002). "Village banking and maternal and child health: evidence from Ecuador and Honduras". "World Development. "Elsevier. 30 (4): 707–723. "doi:10.1016/S0305-750X(01)00128-0. 
  55. ^ Karlan, Dean S.; Valdivia, Martin (May 2011). "Teaching entrepreneurship: Impact of business training on microfinance clients and institutions". "The Review of Economics and Statistics. "MIT Press. 93 (2): 510–527. "doi:10.1162/REST_a_00074.  Pdf.
  56. ^ Sölle de Hilari, Caroline (11 October 2013). "Microinsurance: Healthy clients" (Digital magazine). D+C Development and Cooperation. Germany: Engagement Global – Service for Development Initiatives. Retrieved 12 February 2015. 
  57. ^ Garrity, David M. (2015-01-01). Technologies for Development. Springer, Cham. pp. 45–54. "doi:10.1007/978-3-319-16247-8_5. 
  58. ^ Biswas, Soutik (December 16, 2010). "India's micro-finance suicide epidemic". [3], BBC News. Retrieved July 15, 2015.
  59. ^ Sundaresan, S. (2008). Microfinance emerging trends and challenges (pp. 15-16). Cheltenham, UK: Edward Elgar. 978-1847209207
  60. ^ Mersland, Roy; Strøm, R. Øystein (January 2010). "Microfinance mission drift?". "World Development. "Elsevier. 38 (1): 28–36. "doi:10.1016/j.worlddev.2009.05.006. 
  61. ^ Armendáriz, Beatriz; Szafarz, Ariane (2011), "On mission drift in microfinance institutions", in Armendáriz, Beatriz; Labie, Marc, The handbook of microfinance, Singapore Hackensack, New Jersey: "World Scientific, pp. 341–366, "ISBN "9789814295659. 
  62. ^ Brigit Helms. Access for All: Building Inclusive Financial Systems. CGAP/World Bank, Washington, 2006, p. 97.
  63. ^ Chowdhury, Farooque (June 24, 2007). "The metamorphosis of the micro-credit debtor". New Age. Dhaka. Archived from the original on April 10, 2008. 
  64. ^ "Avoid Wonder Banks, Use Licensed DMBs, NDIC Boss Warns Depositors". 
  65. ^ "Issue 13 Post 2015 - Implementation - Nigeria: Wonder Banks Debunked - Digital Development Debates". 

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