The backlash against microfinance in India has exposed a fundamental contradiction of social businesses – that they are essentially businesses. Private capital may help them grow but it brings with it a strong tendency to turn social businesses from being social to being businesses.
We may only just have seen new studies looking at the impact of microfinance. But the topic is not new. This literature review presents a short selection of studies on microfinance, its context, and its impact on the poor.
Microsavings seem to do much the same for the poor as microcredit (i.e. smooth consumption and investment). But they might do so at a lower cost, and bring additional benefits as well.
The failure in microfinance has been that it has for too long believed in its own rhetoric of poverty alleviation. Now that research proves otherwise, the debate is no longer about what impact microfinance has on society, but how society can use microfinance as a business.
The WSJ report of too much microfinance raises a dangerous parallel with the subprime crises. It is time that social investors scaled back their optimism on the impact of microfinance and its investment potential. As this crises has shown, endless growth cannot be without consequence.
A new survey by the Poverty Action Lab on the impacts of microfinance raises as many questions as it answers.
Microfinance Insights suggests that securitization might help MFIs overcome capital constraints. But MFIs – or at least the good ones – don’t lack for funds. Securitization for MFIs is a dangerous solution, and seems to be mostly a solution looking for a problem.
In a comprehensive article on the reputed Stanford Social Innovation Review (SSIR), Aneel Karnani debunks all the hoopla surrounding microfinance. His conclusion is clear – “microfinance doesn’t cure poverty.”