The Impact of Microfinance on Poverty Alleviation: Making Sense of the Evidence

This chapter sets out to examine the available evidence on the impact of microfinance on poverty alleviation across the developing world. The focus is on microcredit – the most prominent element of microfinance schemes where small amount of money is lent at the market rate mainly to neighbourhood groups of poor women. As the dependence on subsidies continue, so does the debate on how effective is it to lend small amounts of money in terms of pulling people out of poverty by improving business profits, incomes and ultimately help them build physical assets. The chapter draws on the existing literature to synthesise the available evidence in a way that allows crystallisation of some basic empirical facts in an overcrowded space. Overall our results suggest that the economic impact of lending to the poor are at best modest and cannot in any way be taken for granted. Against the backdrop of this accumulated knowledge, using credit alone as a development intervention is neither justified nor helpful.