The Microfinance Schism

This paper examines the enticing win-win proposition put forward by leading advocates for microfinance, which says that microfinance institutions that follow the principles of good banking will also be those that alleviate the most poverty. This vision forms the core of widely circulated, best practices but it is neither supported by logic nor by the available empirical evidence.

The study concludes that:

• Optimism of the win-win vision has generated much energy for the microfinance movement, and it has helped to discourage repetitions of the costly mistakes of the past. But the past decade shows that it has also discouraged constructive dialogues and serious empirical studies that can help to resolve continuing debates;
• Addressing the schism opens up the chance to address misconceptions;
• Recognizing the limits of the win-win proposition is an important step toward reaching a more constructive dialogue between microfinance advocates that privilege financial development and those that privilege social impacts.