The Microfinance Phenomenon

This paper considers the achievements of microfinance to date. In the 1990s, microfinance has captured the imagination of opinion leaders, governments and donor agencies. Supporters have argued that microfinance institutions (MFIs) can not only have a major impact in the fight against poverty, but can do so on a sustainable basis.

The authors find that most, but not all, of the evidence suggests that microfinance can play a role in reducing poverty. But it has become generally accepted that MFIs can and should become financially self-sufficient, few have actually done so.

It may be appropriate for well-managed programs to receive some ongoing level of subsidisation if they can be shown to be effective in reducing poverty. There is a continuing role for donors in the development of microfinance, but it is important that donors focus on quality rather than quantity.