Does Microfinance Still Hold Promise for Reaching the Poor? Facts and (A Little) Speculation
March 17, 2015Inclusion and Shared Prosperity

The benefits of microfinance vary depending on how institutions fund themselves, the markets that they target, and the nature and pricing of the products they offer.

Recent years have witnessed growing complaints about what microfinance has failed to deliver. While field experiments have identified modest benefits associated with microcredit, commentators have expressed concerns both about over-indebtedness and a trend toward commercialization (with the attendant high interest rates and reduced targeting of the poorest clients). Is microfinance failing to deliver on its promise to provide affordable financial tools that can change the lives of the poor for the better?

In this talk, Bob Cull will draw on evidence from multiple sources to show that microfinance does provide benefits, but varies depending on how institutions fund themselves, the markets that they target, and the nature and pricing of the products they offer. Reaching the poorest remains quite costly, and thus subsidies will likely continue to play a role in reaching this population, though subsidies could be better allocated to support institutions that target the poorest clients.

Despite the complaints, microfinance is delivering on many fronts and thus an assessment of whether it is meeting its promise hinges crucially on how that promise is defined. While reducing the costs of providing financial services to the poorest remains a key challenge, research on alternative delivery channels such as mobile telephony and agent banking models shows they have promise.

Last Updated: Mar 02, 2015

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    Robert Cull, Lead Economist

    Robert Cull is a Lead Economist in the Finance and Private Sector Development Team of the Development Research Group of the World Bank. His most recent research is on the performance of microfinance institutions, African financial development, Chinese financial development and firm performance, the effects of the global financial crisis on developing economies, and the design and use of household surveys to measure access to financial services. He has published more than forty articles in peer-reviewed academic journals in the fields of economics, development, and finance. The author and editor of multiple books, his most recent co-edited book, “Banking the World: Empirical Foundations of Financial Inclusion” was published by MIT Press in January, 2013. He is also co-editor of the Interest Bearing Notes, a bi-monthly newsletter reporting on financial and private sector research.
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    Asli Demirgüç-Kunt, Director of Research

    Asli Demirgüç-Kunt is the Director of Research in the World Bank. After joining the Bank in 1989 as a Young Economist, she has held different positions, including Director of Development Policy, Chief Economist of Financial and Private Sector Development Network, and Senior Research Manager, doing research and advising on financial sector and private sector development issues.
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    Gloria M. Grandolini, Senior Director of the Finance and Markets Global Practice

    Gloria M. Grandolini is Senior Director of the Finance and Markets Global Practice at the World Bank. She is responsible for delivering tailored development solutions integrating World Bank Group financial, knowledge/advisory, and convening services to our clients. The Finance and Markets Global Practice implements comprehensive solutions that integrate World Bank services (loans/credits, guarantees, and risk-management products) and IFC services (advisory services and investments in private-sector firms). Her most recent assignment was Country Director for Mexico and Colombia where she was responsible for the Bank's program in those countries aimed at delivering innovative development solutions and at partnering with them to leverage their leadership and enhance South-South collaboration.
  • The Policy Research Talks showcase the latest findings of the research department and their implications for World Bank operations. The goal of the monthly event is to facilitate a dialogue between researchers and operational staff, so that we can challenge and contribute to the World Bank's intellectual climate and re-examine conventional wisdom in current development theories and practices.
  • Date: March 17, 2015
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