Microfinance has proved fairly robust as a banking idea but not as an anti-poverty intervention.
Although microfinance has failed relative to its boldest claims, it has not failed unconditionally. In fact, microfinance has been a wild, improbable, impressive success in important ways. Microfinance grew fast in Bangladesh, serving women whose families live on incomes that are low, if not among the country’s very poorest, and the broader movement inspired by Yunus and his fellow pioneers now serves more than 200 million people globally. Each week, microfinance institutions bring reliable financial services to citizens who otherwise would be ignored and excluded by traditional banks.
We are then left with a puzzle. Why do so many millions of people want microfinance if it fails to deliver on its promises?
The problem is not with its device-ness but with its portrayal. The practice of microfinance is distinct from the narrative that Yunus created to promote it. Microfinance customers have re-imagined what the financial services can do and why they need them. Customers divert microfinance loans from businesses and instead use them to spend on other priorities. By doing that, borrowers provide an alternative view of their real needs (and an alternative view of microfinance’s possibilities). Researchers have tested Yunus’s narrative of entrepreneurial transformation and found it wanting, but the tests are too narrow because Yunus’s narrative is too narrow.
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