Publication Icon

The Case for Social Investment in Microcredit

    |         Topics: ,

There are strong arguments for continued investment in microcredit. These arguments are based on, not in contradiction to, the recent evaluations of microcredit impact. That the average impact of access to microcredit is modest is not in serious doubt. However, every evaluation of the impact of microcredit shows that there are people who benefit, and that most borrowers, when lenders behave responsibly, do not experience harm. Comprehensive research on microfinance and subsidy shows that virtually all microfinance institutions are subsidized, but these subsidies are small. There are two clear paths for increasing microcredit’s impact through continued investment. 

Publication Icon

Microfinance and Social Investment

This paper puts a corporate finance lens on microfinance. Microfinance aims to democratize global financial markets through new contracts, organizations, and technology. We explain the roles that government agencies and socially-minded investors play in supporting the entry and expansion of private intermediaries in the sector, and we disentangle debates about competing social and commercial firm goals. We frame the analysis with theory that explains why microfinance institutions serving lower-income communities charge high interest rates, face high costs, monitor customers relatively intensively, and have limited ability to lever assets. The analysis blurs traditional dividing lines between non-profits and for-profits and places focus on the relationship between target market, ownership rights and access to external capital. 

Publication Icon

Smart Subsidy for Sustainable Microfinance

“Smart subsidy” might seem like a contradiction in terms to many microfinance experts. Worries about the dangers of excessive subsidization have driven microfinance conversations since the movement first gained steam in the 1980s. From then on, the goal of serving the poor has been twinned with the goal of long-term financial self-sufficiency on the part of micro banks: aiming for profitability became part of what it means to practice good microfinance.