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April 23, 2013

"How Microfinance Really Works"-Jonathan Morduch in Milken Review

By FAI

It's an important moment for the microfinance movement. At a time when real progress has been made in making financial services available to the poor, questions abound about the effectiveness of microfinance as a way of helping people escape from poverty. The priveleged position microfinance has enjoyed among poverty interventions and social investment is eroding. Charting the right path forward for microfinance--and effective investments in reducing poverty--requires a closer look at how microfinance really has worked.

In a new essay for the Milken Review, FAI's Jonathan Morduch surveys the history, the evidence and the narrative of microfinance to uncover the assumptions and contradictions at work. While there is evidence that micro-lending helps poor families better cope with poverty if not escape it, there has been too little attention paid to uncovering what poor households actually need from financial services. He says, "if microfinance deserves continuing support, it’s because poor families deserve reliable, hassle-free ways to save and to borrow along with tools to cope with risk." Ultimately, he concludes, the future of microfinance must be built on providing families with a variety of ways to match cash flows with consumption and investment needs. Read more.

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