Microfinance and Poverty Reduction: Can One Organization Make a Difference?

Abstract

Microfinance has become a controversial topic in the field of developmental economics. Proponents maintain that access to microfinance services allows those in poverty to escape a “poverty trap,” a microeconomic situation in which limited resources prohibit individuals from rising above the poverty line by their own means. Opponents of microfinance argue that the benefits of microfinance are unsubstantial and do not result in any significant improvements to quality of life on a substantial and observable level. They also point out the inherent problems in the microfinance industry, citing issues such as poor regulation, inefficient business management, and lack of financial literacy by those who actually utilize microlending services. Currently, there is a limited amount of analysis correlating microlending with subsequent economic and social development on a macroeconomic level. This paper summarizes the results of linear regression analysis of time-series data relevant to microlending and human and social development throughout the world across multiple regions and levels of development. Areas of interest include health, education, and other non-traditional measures of development, such as sanitation and use of mobile technology. Furthermore, this paper links findings of statistical significance in the regression analysis to information and observations obtained during field research to comment on the effectiveness of microfinance initiatives in Bangladesh, one of the oldest, largest, and most-active microfinance sectors in the world.