Why is Microfinance for the Poor Used by the Wealthy? Evidence from China

Peng Peng and Zhigang Xu

Emerging Markets Finance and Trade, 2021, vol. 57, issue 7, 1890-1911

Abstract: Although microfinance has been proposed as a strategy to help the poor escape poverty, its effectiveness depends on accurately targeting those who need help. This study considers anti-poverty microloans from profit-oriented MFIs, such as micro-banks, from the demand side, and examines the reasons for targeting deviations in financial poverty alleviation of developing countries. Survey data of 415 households in 5 poverty-stricken counties in China for 2 years show anti-poverty microloan targeting deviations exist because some poor have no loan demand due to their lack of “intelligence” or “aspirations,” and thus do not apply to micro-banks. Moreover, the local elite exploit microloans targeted for the poor by virtue of their own resource advantages. Therefore, to alleviate financial poverty, programs must strive to improve the poor’s intellect and aspirations. It is also necessary to develop differentiated strategies for different types of MFIs.

Date: 2021
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DOI: 10.1080/1540496X.2019.1694898

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