Microfinance: The Emperor's Old Clothes?

Trouble is brewing within and around the microfinance industry. Some industry watchers have been particularly scathing of the impact (or lack thereof) of microfinance on alleviating poverty. For forty odd years microfinance was touted as the vehicle for delivery of low cost capital to the poor leading and thereby creating opportunities for local enterprise. Today the microfinance industry is accused of not only delivering neat profits for some but of also gifting influential organisations such as the World Bank a formidable political tool.

Microfinance is premised on the belief that providing the poor with access to affordable capital stimulates entrepreneurship, creates jobs and helps to drive poverty out of their communities. That is all very well as long as there is a market for the said entrepreneurial goods and services within the community. In other words, while microfinance may tackle the supply side there is scant empirical evidence that it simultaneously boosts demand (Say's Law). This facilitation of financing has led to too many entrepreneurial businesses chasing too few customers and employing too few people (except the business owners who subsist on poverty wages).

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