Can We Improve the Impact of Microfinance? A Survey of the Recent Literature and Potential Avenues for Success

Robert Lensink, Erwin H. Bulte

Research output: Chapter in Book/Report/Conference proceedingChapterAcademicpeer-review

Abstract

By surveying the latest literature, this chapter aims to contribute to the recent discussion on the
successes and failures of micronance. We argue that the question “does micronance work?” is
neither important nor informative. What matters is knowing when, and in which conditions,
micronance works—and for whom. We claim that the answers to these questions depend on the
details of the microcredit contract as well as on the range of services that micronance institutions
provide (including non-nancial ones). We point at two important reasons why the impact of several
microcredit programs is lower than expected: (1) the rigidness of credit contracts, and (2) the human
capital of end-users. As reforming contract terms and building human capital via business training
and technical assistance are costly, we argue that perhaps subsidies are needed. We focus on studies
dealing with end-users, and pay specic attention to the evolving discussion on group lending and the
role of joint liability to reduce asymmetric information problems and improve repayment rates. We
also discuss the literature focusing on the recent shift of several micronance institutions to individual
lending, and the related trend toward commercialization of micronance
Original languageEnglish
Title of host publicationThe Oxford Handbook of Banking
EditorsAllen N. Berger, Phillip Molyneux, John O. S. Wilson
PublisherOxford University Press
Chapter13
Pages401-430
Number of pages25
Edition3
ISBN (Electronic)9780191863394
ISBN (Print)9780198824633
Publication statusPublished - 6-Nov-2019

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