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Deconstructing 4 microfinance myths
December 1, 2006
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Download Document
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BibTex
Authors

Aishwarya Ratan
Publication Type
TechReport
Pages
12
Number
MSR-TR-2006-194

Abstract
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Related Info
Abstract
The jury is still out on the systematic welfare impact and value-addition from the expansion of
targeted microfinance market interventions for the poor. We present the following four key
insights from a study of 64 low- and middle-income households in rural and urban southern India
today on how they use various financial products, services, and instruments (including
microfinance) to manage their money: (1) respondents borrow for several reasons other than
‘small enterprise development’ (only 30% share) – it is important to unmarry
‘microfinance’ from ‘small enterprise development’ to objectively assess its welfare
impact along multiple dimensions; (2) microfinance remains one (30-35% share) among many
formal, semi-formal and informal savings and credit channels used by poor households to
manage their income and consumption streams, and negotiate risk; (3) there appears to be some
link between being marginally ‘better-off’ in our sample and being affiliated with
microfinance in some form – however, interpreting this will involve solving the causal
inference quandary; (4) microfinance loans at 24-36% interest rates are considered ‘cheap’
(not exploitative) in our respondents’ environment – attractive terms of finance involve
much more than just the stated interest rate. We present these findings to contradict popular
rhetoric on the subject, and provide food for thought to any person/ institution interested in using
market mechanisms to alleviate poverty.
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 Technology for Emerging Markets
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 Technology for emerging markets
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 Microsoft Research Lab - India
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