Small Money Big Impact

CHAPTER 9Beyond the Reach of Microfinance?

Humanity's greatest advances are not in its discoveries, but in how those discoveries are applied to reduce inequity.

Bill Gates¹

Prejudices and reservations, such as that the term “borrower” is synonymous with repayment difficulties and that extortionate interest rates exacerbate poverty rather than alleviate it, are deep‐rooted.

Microfinance is a relatively young asset class, and detailed knowledge and research on it are yet to be made publicly accessible on a larger scale. It is therefore subject to widespread criticism that the microfinance industry has to account for.

9.1 PREJUDICES AND RESERVATIONS

Prejudices about the poor and how they handle money are deep‐set. The consensus seems to be that low‐income parts of the population should not borrow money, as they will fail to repay it anyway. Or that the poor, even on the verge of starvation, would rather squander the funds given to them to indulge themselves instead of investing them in a sustainable business activity. Practice, however, has shown a different picture altogether. As a rule, for the poor, long‐term economic advancement clearly takes priority. Borrowers are fully aware of their unique investment opportunity, and there are loan officers who will ensure that a loan is used as specified. They will step in to monitor the situation more closely should it prove necessary. ...