Microfinance Research Paper

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Many policymakers are interested in entrepreneurship as a potential pathway out of poverty, and several recent studies show that small-scale entrepreneurs have access to high-return investments [1] [2] [3].

Yet, low-income households have historically had limited access to financial services such as credit, savings, and insurance products that could lead to increased investments [4].* Microcredit was designed to overcome credit market failures and help low-income borrowers take advantage of investment opportunities.

Indeed, loans targeted to specific borrowers—high-potential entrepreneurs—show some promise for increasing incomes.

Furthermore, many borrowers use loans for consumption rather than investments, suggesting that there are other, non-entrepreneurial returns to these products.

For example, a growing number of people who have transcended the national poverty line and stayed above it for some years implies real and lasting impact.

Microfinance Research Paper

The recent World Bank study, by Shahidur Khandker and Hussain Samad, attempts to generate such broad evidence to assess impact.

Microloans also tend to be costly to deliver and expensive for low-income borrowers, though product and market innovations can make it easier for banks to lend at lower costs.

In addition, loans may not be structured in ways that facilitate making high-return investments.

The question of whether it provides this incontestable proof of effectiveness warrants more than a answer. Proof of positive impact encompasses a host of definitions, from general ones such as rising levels of GDP per capita or other measures of progress out of poverty, to narrower ones such as growing investment in education or certain health outcomes.

Regardless, to those who practice microfinance or study the sector, there is consensus that impact means real and lasting benefits to people, society, and economy.


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