Microfinance as a development and poverty reduction policy: is it everything it's cracked up to be?

Working and discussion papers
March 2011
Milford Bateman

Microfinance is the provision of tiny loans to the poor to help them establish or expand an income-generating activity, and thereby escape from poverty. For more than 30 years microfinance has been portrayed as a key policy and programme intervention for poverty reduction and ‘bottom-up’ local economic and social development. But, is microfinance really having a positive impact?

Even some long-standing supporters of microfinance now accept that the evidence of its positive impact in the community is very weak. Evidence to the contrary now needs to be weighed against the hyperbole surrounding microfinance. More focus is needed on other interventions that may better promote growth and poverty reduction, such as local financial systems and poverty reduction models with a good track record.

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