Responsible Finance Forum

Microfinance and Economic Development

Robert Cull and Jonathan Morduch
Source:  World Bank Group

This paper is an insightful and well-written analysis that advocates for a refreshed vision of microfinance following four decades of experience. The authors reconsider the claims about microfinance, both about its social and economic impacts on households and about microfinance institutions’ own profitability as business enterprises that serve low-income households.  The paper argues that claims about large impacts and profits have been exaggerated, but so have claims about failures.  Recent literature suggests that microfinance impacts remain modest and mixed, but, more optimistically, the authors also find relatively low costs to providing microfinance (Cull et al. 2017).  Microfinance should thus be seen as a basic intervention that, despite modest average benefits, can still deliver favorable benefit-cost ratios, especially when well-targeted.