MICROFINANCE REVOLUTION: ITS EFFECTS, INNOVATIONS, AND CHALLENGES

Authors


  • This research is part of the project “Role of Small-Scale Finance in Rural Development: Rural Finance and Microfinance” undertaken at the Institute of Developing Economies (IDE-JETRO). The authors are greatly indebted to a referee of the journal for excellent comments and suggestions, which improved the paper remarkably. Hisaki Kono also thanks the Japan Society for the Promotion of Science for financial support (KAKENHI 20730198). The opinions expressed and arguments employed in this paper are the sole responsibility of the authors and do not necessarily reflect those of IDE-JETRO.

Abstract

“Microfinance revolution” is the term often applied to the successful expansion of small-scale financial services to the poor with high repayment records in developing countries. The present paper investigates the extent to which the microfinance revolution is truly revolutionary. More specifically, it explores the impact of microfinance institutions on the poor, the mechanisms underlying high repayment rates and their innovations, and the new challenges microfinance institutions are currently facing. Different from the existing published survey literature, we focus on current topics and attempt to show recent theoretical developments in a comprehensive manner using simplified models with very similar settings. We contend that microfinance is developing in a promising direction but has yet to reach its full potential.

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