Corporate Governance in Germany: An Economic Perspective

This paper analyzes the long-term effects of small-scale lending by MFIs.

Conventional impact analyses usually investigate the ways in which small-scale lending programs directly affect borrowers' incomes. The paper analyzes income-related effects of small loan programs for all market participants considering different scenarios such as that prior to the introduction of small-scale lending, assuming a low level of market penetration and finally, assuming a high degree of market penetration.

The analysis assumes that the cost and supply functions of borrowing enterprises are not significantly different from those of enterprises that do not receive credit. Findings indicate that:

• Impact on income will accrue to the consumers of microenterprises' products, and not to the microenterprises themselves;
• Microfinance will have a significant positive effect on wage levels of employees in the informal sector;
• Microfinance will cause high growth rates in the informal production sector, whereas the trade sector will either contract or grow very little;
• Non-customers might even suffer income losses larger than the income gains accruing to MFI customers.