Microfinance and Economic Development

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Microfinance is generally seen as a way to fix credit markets and unleash the productive capacities of poor people who are dependent on self-employment. The microfinance sector has grown quickly since the 1990s, paving the way for other forms of social enterprise and social investment. But recent evidence shows only modest average impacts on customers, generating a backlash against microfinance. This paper reconsiders the claims about microfinance, highlighting the diversity in evidence on impacts and the important (but limited) role of subsidies. The paper concludes by describing an evolution of thinking: from microfinance as narrowly construed entrepreneurial finance toward microfinance as broadly construed household finance. In this vision, microfinance yields benefits by providing liquidity for a wide range of needs rather than solely by boosting business income.

Document Information

Document Type Paper
Author Robert Cull; Jonathan Morduch
Year of Publication 2017
Publisher World Bank Group
Number of Pages 45 pp.
Region / Country Global /
Primary Language English (en)
Keywords Microfinance, Financial Inclusion, Poverty, Implicit Subsidy, Economic Development
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