The Long Term Impact of Microfinance on Income, Wages and the Sectoral Distribution of Economic Activity

This paper analyses the long-term effects of improved small-scale lending, often provided by MFIs set up with the support of development aid.

The analysis shows that some common assumptions about microfinance are not true at all:

• First, it shows that the impact on income will accrue not to the microenterprises themselves, but rather to the consumers of their products;
• Second, microfinance will have a significant positive effect on the wage levels of employees in the informal sector;
• Third, microfinance will cause high growth rates in the informal production sector, whereas the trade sector will either contract
  or at best grow very little.

[From the Author]