Microfinance: Are Its Promises Ethically Justified?

This article analyzes the impact of microfinance on the actual reduction of poverty, especially in the face of commercialization that has taken place. It shows that if poverty can be redefined to include deficiency in financial, human and social capital, microfinance may have both negative and positive effects on poverty. This article notes that as microfinance is at times used for transforming subsidy dependent institutions into financially sustainable ones that serve the poor, the final result of poverty reduction was not really the goal of microfinance, but a possible side effect. This raises two ethical issues:

• That if in creating a solution to an unethical situation, a new problem is created, it is not correct; and
• It is not ethical to claim that microfinance is reducing poverty if the actual objective is to bail out subsidy dependent institutions.

The article concludes by noting that poverty should be clearly defined, and the objectives made explicit. By turning microfinance organizations into real financial institutions, the main objective becomes financial sustainability and maximizing on profit, which will change the whole purpose behind microfinance.