Microfinance - new direction or lost in implementation?
http://www.developmentoutlook.org/2012/07/microfinance-new-direction-or-lost-in.html
Some argue that microfinance alleviates poverty and some
claim that microfinance causes over-indebtedness among the poor and thus, it
has become even more important to understand the effective of microfinance.
This article talks about research findings from two
randomized evaluations - one from rural areas of Morocco and the other from
Kolkata, India (which is also a CMF study).
The study
conducted in Morocco found
that even though, microfinance banks increased people’s access to loans, it did
not cause any “significant rise in the number of new businesses being set up”.
The study found that the profits that clients made from their business were used
to pay the interest on the loans.
Likewise, the
study conducted in Kolkata found
that clients who received a grace period before they begin repayment invested
almost 10% more of their loan into their business, however, greater flexibility
in repayment increased default.
The article concludes by suggesting that MFIs could probably
offer clients an option of taking a loan with flexible repayment schedule with
higher interest rates or immediate repayment schedule with lower interest
rates.