Microfinance provides financial services like credit, savings, and insurance to low-income individuals who lack access to traditional banking services. These services allow people to build wealth and smooth consumption without relying on predatory lenders. While microfinance has helped many individuals, some debates questions whether it can provide a long-term solution to poverty at large scales. Bateman argues it may divert funds from small businesses, while Karnani believes employment and productivity are more important for reducing poverty than microfinance alone. Implementing microfinance also faces challenges like high costs, low education levels, and a lack of infrastructure in some areas. Overall, microfinance has shown some success but may be only part of the solution and not sustainable in all

1. What is microfinance? Trockman Microfinance Initiative Industry Analysis Team – Economics February 25, 2009

2. Report Overview Introduction– Why microfinance? Microfinance – What is microfinance? Microcredit – What is microcredit? Debate– Is microfinance a viable long-term solution? Conclusion – What feedback can TMI offer?

3. Introduction: Diminishing Returns to Scale as Justification Output Marginal product of capital (mpk) decreases as capital increases Returns are much greater at the low end of the scale, meaning that small amounts can be lent at high costs and still be efficient y=zf(k) mpk mpk Capital

5. Informal arrangements

6. 1990 survey in rural Indonesia found that 70% of low income households borrowed money

7. Bangladeshi households borrow, on average, 2/3 of their income per year ($839), from an average

9. Ideally a market based solution, not a form of charity

12. Creativity in contracts and forms of lending

13. Group lending

14. Market established rates

16. Business development

17. Home construction

18. Major expenses

19. Savings

20. Deposit accounts

21. Client ownership

22. Insurance

23. Health policies

24. Natural disaster policies

25. Life insurance policies

26. Money transfer

27. Remittance servicesSource: www.microfinancegateway.org

29. Borrowing in this way often leads to abuse or being taken advantage of by lenders

30. Credit

31. The poor can “break the cycle” of poverty, eliminating their reliance on predatory lenders

32. “Saving by buying,” “putting money under the mattress”

33. Saving in these ways yields no return, is not liquid, and is prone to theft and loss of wealth

34. Savings deposits

35. The poor are able to build up wealth in a safe, liquid waySource: www.microfinancegateway.org

36. Microfinance: Other Services Many MFIs use microfinance as a way to provide clients with other aid. Source: www.microfinancegateway.org

38. Stepped Lending: incentive

40. Administrative: loan officers’ time, personalized, small loans.Source: Brigit Helms and Xavier Reille, Interest Rate Ceilings and Microfinance, The Story So Far, based on data prepared by Sanjay Sinha.

42. Used data from Serbia

43. 2 Results from the increase in microfinance

44. Shortage in funds for small and medium large businesses

45. Increase in microenterprises

47. Examines 6 countries

48. Supports notion of employment and worker productivity as key to reducing poverty

50. Recipients lack literacy and education

51. Government does not allow MFI’s to collect deposits

53. Idea of borrowing and collectivism deter economic development

55. Some success and some failure