Does microfinance foster development? A critical review of literature

Md. Atiqur Rahman and Salah Uddin Rajib

Global Business and Economics Review, 2023, vol. 29, issue 4, 405-428

Abstract: We reviewed literature on impacts of microfinance on poverty, women's empowerment, social welfare of participants, and on macroeconomic impacts of microfinance. Forty articles and five books published between 1996 and 2021 were reviewed. Researchers generally agree that microfinance increases consumption and generates income for participants. However, several studies find improvement in consumption to be led by misappropriation of microcredit. Sufficiency of income generated is also questioned. Researchers agree that generating savings and developing entrepreneurship are prerequisites for sustainable escalation from poverty through microfinance. The impact of microfinance on women's empowerment and social welfare remains ambiguous. The popularity of the non-subsidised microfinance model raised concern about the compromise of MFI social missions. At a macro level, microfinance has trivial positive impact on GDP. It slightly reduces poverty headcount, and income inequality, and reduces production efficiency in the short run. Significant regional differences in micro and macro level impacts have been observed. We also identified future research avenues.

Keywords: microfinance; microcredit; poverty; women empowerment; mission drift; macroeconomic development; GDP; literature review. (search for similar items in EconPapers)
Date: 2023
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