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Microfinance and Poverty Reduction: The problematic experience of Communal Banking in Peru

  • Ana Marr

    ()

    (Department of Economics, SOAS, University of London, UK)

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    As a response to many partial and over-simplistic theoretical and empirical studies, this paper presents a more comprehensive analytical framework for assessing the success of microfinance in achieving its dual objective of financial sustainability and poverty reduction. By giving centre stage to the study of group dynamics and using principles of social psychology and imperfect information, the paper argues that microfinance has not only not solved the original problems of information asymmetries between borrowers and lenders but also, in its pursuit of financial sustainability, is destroying the very foundations of these schemes by disrupting the social fabric of communities, creating more poverty and excluding the poorest and most vulnerable from any given group.

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    File URL: http://www.soas.ac.uk/economics/research/workingpapers/file28856.pdf
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    Paper provided by Department of Economics, SOAS, University of London, UK in its series Working Papers with number 122.

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    Length: 21 pages
    Date of creation: Feb 2002
    Date of revision:
    Handle: RePEc:soa:wpaper:122
    Contact details of provider: Postal: Thornhaugh Street, London WC1H OXG
    Web page: http://www.soas.ac.uk/economics/

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    1. de Aghion, Beatriz Armendariz & Gollier, Christian, 2000. "Peer Group Formation in an Adverse Selection Model," Economic Journal, Royal Economic Society, vol. 110(465), pages 632-43, July.
    2. Wydick, Bruce, 1999. "Can Social Cohesion Be Harnessed to Repair Market Failures? Evidence from Group Lending in Guatemala," Economic Journal, Royal Economic Society, vol. 109(457), pages 463-75, July.
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