The Record of Microfinance: The Effectiveness/ineffectiveness of Microfinance Programs as a Means of Alleviating Poverty

This article reviews recent research on the effectiveness of microfinance programs, and proposes areas for future research.

Microfinance programs have continued to grow in usage and popularity. The paper states that:

• Many studies have demonstrated the success of microfinance programs in underdeveloped countries;
• Studies have also demonstrated the negative impact of microfinance programs or have failed to find a direct link between microfinance and poverty reduction;
• Effectiveness of microfinance as a universal poverty alleviation tool is still in question;
• Much of the evidence of the success of microfinance is anecdotal or involves location and time specific case?study approaches;
• Studies do not have rigorous standards that allow their findings to be generalized.

NGO leaders and government policy makers must exercise caution in applying the microfinance approach universally as a poverty alleviation tool until more rigorous studies of the impact of microfinance are conducted. The paper highlights the need for stringent evaluation of microcredit programs with data that can be rigorously analyzed, methods that can be replicated and findings that can be generalized.