Abstract
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.
Professor, University of Mannheim.
Chapter PDF
Similar content being viewed by others
Keywords
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
References
Alam, S.M. (2012) Does Microfinance create over-indebtedness? Working Paper, under http://ssrn.com/abstract=2070616.
Banerjee, A.V., Duflo, E. (2011) Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. New York.
Biswas, S. (2010) India’s micro-finance suicide epidemic, under www.bbc.co.uk/news/world-southasia-11997571 (12.8.2012).
Drake, B. (2009) Small Change. In: The Boston Globe 20.9.2009, under http://www.boston.com/bostonglobe/ideas/articles/2009/09/20/small_change_does_microlending_actually_fight_poverty/(12.8.2012).
Duflo, E., Glennerster, R., Kremer, M. (2007) Using Randomization in Development Economics Research: A Tool-Kit. In: Gonzalez, A., Handbook of Development Economics, vol. 4, pp. 3895–3962. (2009) Microfinance at a glance – 2008. Microfinance Information eXchange, Washington D.C.
Duvendack, M., et al. (2011) What is the evidence of the impact of microfinance on the well-being of poor people? Research Report, EPPI-Centre, Social Science Research Unit, Institute of Education, University of London.
Guinnane, T.W. (2011) The Early German Credit Cooperatives and Microfinance Institutions Today: Similarities and Differences. In: Armendáriz, B., Lapie, M. (eds) Handbook of Microfinance, London-Singapore, pp. 77–100.
Harford, T. (2009) Perhaps microfinance isn’t such a big deal after all. In: Financial Times 5.12.2009, under http://www.ft.com/cms/s/0/ae4211e8-dee7-11deadff-00144feab49a.html (12.8.2012).
Hottenrott, V. (2002) Die Ăśberschuldung privater Haushalte in Deutschland vor dem Hintergrund der neuen Insolvenzordnung. Diss., University of Heidelberg.
Hulme, D., Mosley, P. (1996) Finance against poverty, Vol. 1, London.
Krahnen, J.P., Schmidt, R.H. (1994) Development Finance as Institution Building. Boulder, Col.
Morduch, J. (1999) The Promise of Microfinance. Journal of Economic Literature 37:1569–1614.
Pande R., et al. (2012) Does Poor People’s Access to Formal Banking Services Raise their Incomes? EPPI-Centre, Social Science Research Unit, Institute of Education, University of London.
Pretes, M. (2002) Microequity and Microfinance. World Development 30(8):341–1352.
Rosenberg, R. (2007) CGAP reflections on the Compartamos Initial Public Offering: A case study on microfinance interest rates and profits, CGAP Focus Note No. 42, Washington D.C.
Schicks, J. (2010) Microfinance Over-Indebtedness: Understanding its drivers and challenging the common myths. Centre Emile Bernheim (CEB) Working Paper No. 10/048.
Schicks, J. (2012) Over-indebtedness in Microfinance – an empirical analysis of related factors on the borrower level. Centre Emile Bernheim (CEB), Working Paper No. 12/017.
Schicks, J., Rosenberg, R. (2011) Too much Microcredit? A Survey of the Evidence on Over-Indebtedness. CGAP Occasional Paper No. 19.
Stewart, R., van Roojen, C., de Wet, T. (2011) Do micro-credit, micro-savings and micro-leasing serve as effective financial inclusion interventions enabling poor people, and especially women, to engage in meaningful economic opportunities in LMICs? EPPI-Centre, Social Science Research Unit, Institute of Education, University of London.
Van Roojen, C., Stewart R., de Wet, T. (2012) The Impact of Microfinance in Sub-Saharan Africa: A Systematic Review of the Evidence. In: World Development, forthcoming.
Wade, M. (2010) From a Blessing to a Curse, underhttp://www.theage.com.au/national/from-a-blessing-to-a-curse-20101213-18vjo.html (12.8.2010).
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
This chapter is published under an open access license. Please check the 'Copyright Information' section either on this page or in the PDF for details of this license and what re-use is permitted. If your intended use exceeds what is permitted by the license or if you are unable to locate the licence and re-use information, please contact the Rights and Permissions team.
Copyright information
© 2013 The Author(s)
About this chapter
Cite this chapter
Terberger, E. (2013). The Microfinance Approach: Does It Deliver on Its Promise?. In: Köhn, D. (eds) Microfinance 3.0. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-41704-7_9
Download citation
DOI: https://doi.org/10.1007/978-3-642-41704-7_9
Published:
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-41703-0
Online ISBN: 978-3-642-41704-7
eBook Packages: Business and EconomicsEconomics and Finance (R0)