This paper reviews the triumphs and troubles of the microfinance industry. It then sets forth a frame for assessing the impact of microfinance, one that helps put the recent challenges in perspective. It offers some thoughts, in light of these difficulties, about key tasks going forward. It concludes that microcredit stimulates small-scale business activity, but the best available evidence fails to show it reducing poverty. Its ability to empower people, especially women, is also ambiguous since while it can give women more economic power, in some cases it has burdened them with the fear of default and loss of face in public group setting.
The main achievement of the microfinance movement has been the founding of businesses and business-like non-profits that are delivering these services to millions of people on a sustainable basis. The core problem facing the industry is that just as a stable banking system is more than a bunch of banks, a microfinance industry is more likely to be safe and resilient if it contains not just microfinance institutions, but credit bureaus, consumer protection laws, effective regulators, and more. Many of these other institutions are weak or absent in poor nations.
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