The Microfinance Marvel: Where Does Hope Meet Reality?

Abstract

There is an immense worldwide focus on microfinance as a means to abate poverty. What began as small loans provided to microentrepreneurs for business purposes has come to include consumer loans and other financial services for the poor, provided in an increasingly commercial environment. Microfinance has experienced rapid growth and created high expectations due to its perceived ability to produce economic benefits and lead to improvements in areas like gender relations and health and education. Microcredit has been especially useful for vulnerable, self-employed individuals working in the informal economy. However, microfinance is not an effective tool to spur economic growth on a national or even regional level, and cannot live up to the hopes it has produced. This thesis will look at important concerns and limitations related to what has become a global microfinance movement. The analysis is influenced by experiences as an intern in Paraguay with Fundación Paraguaya, a development organization that offers group and individual microloans.