By Abhilash Samuel

            “An unacceptably high proportion of the world’s population lives in dreadful conditions that consign them to Malthusian lives that are nasty, brutish and short”, says Norbert Kloppenburg, the senior vice president of KfW Entwicklungsbank, a microfinance institution based in Germany.[1] The alleviation of poverty through banking, or more precisely the provision of subsidized credit was a centerpiece of many countries’ development strategies from the early 1950s through the 1980s, but these experiences were nearly all disasters.[2] Microfinance, as it is known today, began with small experiments around 1980 that attracted official development assistance or corporation.

            The backdrop to the development of microfinance institutions was the failure of government assistance to the poor. It was appropriately recognized that government assistance to the poor often creates dependency and disincentives that worsen the standard of living in the economy. Jonathan Morduch in his paper ‘The Microfinance Promise’, says, “Despite decades of aid, communities and families appear to be increasingly fractured, offering a fragile foundation on which to build.”[3

            Microfinance institutions emerged as a consequence of the breakdown of government institutions to reduce poverty within the economy. Supporters of microfinance argue that the economic and social structures can be transformed by providing financial services to low income households. In addition, microfinance institutions are profit driven and offer a “win-win” solution for the financial institution and poor clients.[4] This paper, however, holds the stance that microfinance cannot be a tool of wealth creation as it detracts from saving and requires substantial government intervention.

Is microfinance ethical finance

            Microfinance is promoted primarily on the grounds of social and humanitarian aims. Kloppenburg vehemently asserts:

“The condition of the poor is all the more unacceptable because societies that make up a relatively small proportion of the world’s population have found ways, over very lengthy periods of time, that have permitted them to create great wealth, to prosper and enjoy opportunities that would have been unimaginable in earlier generations. This dichotomy – between rich societies and poor ones – is the largest economic and social issue of our time, and also the largest disgrace.”[5]

Kloppenburg, perhaps indirectly, suggests that the privileged members of society are responsible for this “disgrace”. And as privileged members of society, they need to eliminate this dichotomy. Microfinance, according to Kloppenburg, has shown that the working poor can create significant benefits for themselves with quite small loans.[6] The very act of helping the poor help themselves,  is according to many people ethical. There are many who claim that microfinance has been able to bring dignity and integrity to the fight against extreme poverty that, in the past, the different types of support to the poor were unable to do.

            However, Mario La Torre in his book, ‘Microfinance’, correctly claims that in our world today the definition of ethics is subjective. In his analysis of the ethics of microfinance, La Torre examines the behavior of the individuals involved, the depth of ethical activity, and the ethicality of intermediation.[7] Examining the ethicality of microfinance on those three levels, La Torre finds the answer in the cost of financial intermediation and the profit margin. Taking a pragmatic approach, however, he says that, while the cost of intermediation is great for most microfinance institutions “this cost is acceptable since it compensates for the possibility of accessing otherwise inaccessible financial services.”[8] Moreover, he says that it is also ethical when the intermediation cost incorporates a profit margin lower than the market rate, which according to him is a feature of microfinance institutions. Apart from these technical aspects that inevitably make microfinance an ethical practice, La Torre also asserts that encouraging access to financial services for individuals whom the financial system traditionally excludes is surely ethical.[9]

            The analysis provided by La Torre is certainly an investigation biased towards the promotion of microfinance as an ethical instrument. Poverty is certainly a significant problem of our time. Moreover, there are individuals who are genuinely concerned about poverty and honestly believe microfinance is an appropriate, free market tool to overcome poverty. As a result, microfinance appears to be a valid and ethical alternative for the eradication of poverty. Nevertheless microfinance institutions need to be analyzed in greater depth.

La Torre’s analysis on the surface seems detailed and valid. However, in reality the examination lacks depth. Firstly, funds provided to the poor are often subsidized by the government. James Morduch in his paper titled ‘The Microfinance Promise’ says, “…most programs continue to be subsidized directly through grants and indirectly through soft terms on loans from donors.”[10] He further cites a recent survey that shows that even poverty focused programs with a commitment to achieving financial sustainability cover only about 70 percent of their full costs. The Grameen Bank in Bangladesh, for example, would have trouble making ends meet without ongoing subsidies. The case for ethics is invalid here because government subsidies are not a result of saving and investment, but accrue from taxes or through an increase in the quantity of money. Mises, in his book ‘Human Action, says “Tax the rich and spend the revenue for the improvement of the condition of the poor, is the principle of contemporary budgets”. Frank Chodorov, in his paper, appropriately characterizes taxation when he says, “It is not the law which in the first instance defines robbery, it is an ethical principle, and this the law may violate but not supersede. If by the necessity of living we acquiesce to the force of law, if by long custom we lose sight of the immorality, has the principle been obliterated? Robbery is robbery, and no amount of words can make it anything else.”[11] As far as an increase in the quantity of money is concerned, Mises in ‘The Theory of Money and Credit’ says that it is a process that by-passes people’s democratically defined desires. Hence, while the use of microfinance institutions cannot be justified on ethical grounds, there are concerns that with the microfinance process that could make it unethical.

 

Microfinance: State Intervention and Wealth Creation

            Wealth creation according to supporters of microfinance is defined as an improvement in human productivity. Microfinance is also viewed as the solution to the problem of poverty that has universal application.[12] The San Francisco Examiner gives examples of how microfinance has had beneficial effects on individuals around the world. It tells of four women helped by microfinance: a textile distributor in Ahmadabad, India; a street vendor in Cairo, Egypt; an artist in Albuquerque, New Mexico; and a furniture maker in Northern California. The story continues:

“From ancient slums to impoverished villages in the developing world to the tired inner cities and frayed suburbs of America’s economic fringes, these and millions of other women are all part of a revolution. Some might call it a capitalist revolution…As little as $25 or $50 in the developing world, perhaps $500 or $5000 in the United States, these microloans make huge differences in people’s lives… Many Third World bankers are finding that lending to the poor is not just a good thing to do but it is also profitable.”[13]

While the alleged success of microfinance has been far reaching, the wealth creation ability of microfinance has been overstated. It is important to analyze the source of funds and accountability for the funds provided to the poor. Patrick Goodman, a consultant to microfinance institutions, in his report, ‘Microfinance Investment Funds: Objectives, Players, Potential’, assesses funding and major investors to microfinance institutions. He says that, “A US $30 million tranche (securitized bonds) bearing the least risk carries a guarantee from the US governments and was bought by institutional investors.”[14] Hence, a significant amount of investment comes from government institutions.

Grameen Banks, Bangladesh

            The case of Bangladesh’s Grameen banks is perhaps most interesting. The idea of the Grameen Bank was undoubtedly “new”, in the sense that the idea of microcredit had not been generated to affect millions of poor households. In fact, Grameen’s success has been assessed by the number of people affected, rather than its financial viability. Programs that have been set up in North Carolina, New York City, Chicago, Boston, and Washington D.C. cite Grameen as an inspiration.[15] In addition, Grameen’s group lending model has been replicated in Bolivia, Chile, China, Ethiopia, Honduras, India, Malaysia, Mali, the Philippines, Sri Lanka, Tanzania, Thailand, the U.S. and Vietnam. The founder of Grameen banks, Muhammad Yunus, often boasts of stupendous statistics such as, “Grameen has reached out to twelve million people or one-tenth of the population of Bangladesh.” He often uses poverty related rhetoric to gain increasing support for his plans with Grameen banks. He says: “…now that independent studies have shown that within ten years Grameen has managed to push one-third of its borrowers out of poverty, and to push one third of its borrowers up close to the poverty line, my message is always the same: poverty can be eradicated in our lifetime. We only need political will.”[16]

Furthermore, in reference to the establishment of Grameen banks, Yunus says that he found that most villagers were unable to obtain credit at reasonable rates, so he began by lending them money from his own pocket, allowing the villagers to buy materials for projects like weaving bamboo stools and making pots. Ten years later, he had set up the bank drawing on lessons from informal financial institutions to lend exclusively to groups of poor households.

            Yunus also voices his opinions about commercial banks, and explains how their functioning and operations overlook the poor. In reference to the employees that are hired by Grameen, Yunus says, “We tell them, ‘Go away. Do not come to the office. Sleep under a tree or gossip in a tea stall, but do not come to the office.’”[17] This philosophy is maintained essentially because, unlike a regular commercial bank, Grameen bank wants its employees to be amongst the people, rather than having the people come to them. Unlike commercial banks Grameen banks does not require its clients to show any collateral. Yunus explicitly says, “Our clients do not need to show how large their savings are and how much wealth they have, they need to prove how poor they are, how little savings they have.”[18] Moreover, he claims that commercial banks are “only” liable to its shareholders, where as Grameen banks are liable to its shareholders, who are the borrowers as well, and the government, which somehow increases Grameen’s liability. In addition, Yunus claims that Grameen’s success is measured not by bad debt figures or repayment rate, but by whether the miserable and difficult lives of borrowers have become less miserable.[19] A commercial bank on the other hand will ask at the start of its loan whether the borrower has collateral to repay it. Then supposedly forgets about that borrower completely. Only if the loan is not repaid will it concern itself again with the borrower.[20] Another reason why Grameen banks, according to many, display greater social responsibility is the fact that while commercial banks serve people who are living well above the poverty line, Grameen’s borrowers are all initially below the poverty line.

Government Intervention in Grameen Banks

It has already been mentioned that a large portion of the funds that flow into Grameen banks are in the form of subsidies. Without these subsidies, Grameen would not be a financially stable institution. If Grameen had been a market institution, it would have suffered $34 million in losses between 1985 and 1996, or it would have had to raise its loan rates to well above 50%. Most loans are for one year with a nominal interest rate of 20 percent. [21] Calculations suggest, however, that Grameen would have had to charge a nominal rate of around 32 percent in order to become fully financially sustainable.[22] Grameen argues that such an increase would undermine the bank’s social mission.

            Yunus suggests that the government is a significant stakeholder in Grameen banks. He says that while his plan was to have the Grameen Bank one hundred percent owned by the borrowers, his good friend, the finance minister of Bangladesh indicated that his proposal would have a better chance of passing if he offered a block of shares to the government.[23] He also says that, Dr. Hossain, a resident scholar, suggested that forty percent of the shares should go to the government, and the remaining sixty with the borrowers. Yunus concedes: “Without much enthusiasm, I went along with this.”[24] Hence, the role of the government in Grameen operations cannot be disputed. In fact, most would suggest that the government should play a significant role in the alleviation of poverty. Funds provided to microfinance institutions are, as suggested earlier, a product of, either taxation or increase in the quantity of money.

            It has already been established that taxation is equivalent to robbery. An increase in the quantity of money, or inflation, on the other hand, is often justified on pragmatic grounds. Mises, however, says that “there is a need to realize that inflation does not add anything to a nation’s power of resistance, either to its material resources or to its spiritual and moral strength.”[25] Even if poverty exists on a level that is seriously affecting the economy, the solution must be provided out of the available means by restricting consumption for non-vital purposes, by intensifying production in order to increase output and by consuming part of the capital previously accumulated.[26] As a result, the economy will effectively be able to reduce poverty without resorting to artificial methods such as inflation.

            Furthermore, Mises says the only reason a government would resort to an increase in spending is because they fail to convince the majority of the population that poverty is a serious problem affecting the economy. Mises says: “They (people) do not believe that conditions are so bad as the government depicts them or they think that the preservation of the values endangered is not worth the sacrifices they would have to make.”[27] The government, however, could be right, that there is in fact a serious problem of poverty that is plaguing the economy. However, the methods chosen for the solution is of greater significance. In effect, they reject the democratic way of persuading the majority. The state assigns itself the power and moral right to thwart the will of the people. They win the cooperation of people by deceiving them about the costs involved in the measures suggested. In effect, for purposes defined by them, they act as guardians of the people.

            Mises also says that the majority might support policies such as taxation, but they essentially do not want to pay for the costs incurred by the state. They uphold these policies only to the extent that their conduct does not burden themselves. In effect, they vote only for such taxes as are to be paid by other people, namely the rich; because they think that these taxes do not impair their own material well being. However, if a government is resorting to inflation, “it is employing methods which are contrary to the principles of representative government, although formally it may have fully complied with the letter of the constitution.” [28]

             Advocates of microfinance often indirectly posit that the poor are deliberately excluded from access to credit. Many of Yunus’ claims about commercial banks vehemently attack the services provided by commercial banks. In essence, he claims that commercial banks deliberately overlook the poor, who could potentially be their largest source of profit. Jeffery Tucker in his paper titled, ‘Microcredit or Macrowelfare – the myth of Grameen’, says, “Half the population lives below the poverty line in Bangladesh. Are we really supposed to believe that banks blithely overlooked millions of poor people out of bias or hatred or snobbery?”[29] Tucker further says that there is no way commercial banks could have been so “stupid” to not spot this opportunity even after decades of demonstration. Furthermore, significant donors to Grameen banks have been the United Nations, the government of Bangladesh and the United States.

The case against Microfinance           

Thomas Dichter, who critically analyzes microfinance economic institutions, lays down four main developments, in reference to microfinance, in the economic history of rich countries.

 

He says:

1.      Earlier forms of microcredit never played a significant role in business start-up or small business development,

2.      The first efforts at democratizing financial services were almost entirely savings and “thrift” based,

3.      Economic development in fact came before the movements to democratize financial services, and

4.      When credit for the poor did come along it followed the saving movement and developed almost entirely in relation to consumption.[30]

These developments are certainly still valid and applicable today and microfinance cannot be expected to yield the kind of results that a significant number of people have supported and advocated. Dichter, in his categorical arguments, first assesses whether the poor have any assets whatsoever. This is because most microfinance institutions do not require any form of collateral from the poor when they take out loans from these institutions. Dichter, however, claims that this issue is fairly complex. He says that the assets of the rural poor are often hidden from view, often deliberately, to avoid exploitation or expropriation. He cites the nineteenth century where peasants often hid what they had from tax collectors, the landlord or their neighbor.[31] He even talks about the 16^th century, when farmers in the Alps took measures such as cutting production of cheese to pay fewer taxes. He contends that in many countries such as India, China, Russia or even the United States, relatively poor people find ways to hide or underestimate their assets. As a result, microfinance institutions often assert that the poor are without assets. Moreover, very little research on poverty is conducted, because it is done too quickly and superficially to unearth anything more profound than the answers the poor want to give researchers.[32] Dichter also says that they hide, or save these assets because of their poverty and their frequent indebtedness. Generations of such attitudes have “shaped some of their behavior, rendering them often cunning, conservative survivalists, who were forced by circumstance to find myriad ways to deal with crisis, periodic shortages, and, of course , death and taxes.”[33] Also, microfinance institutions often view the poor one dimensionally – that they are needy creatures, with immense potential, but with little resilience and few strategies or choices. As a result, microfinance institutions feel compelled to mete out loans to the poor without any collateral.

            In most cases these loans are given out to start new businesses and to promote an entrepreneurial spirit among the poor. Historically however, credit was used by real businesspeople such as traders and merchants.[34] There is a stark difference between the traditional view of credit and current microfinance framework. Dichter says they see it as “linear and in black-and-white terms.” The view is very simple in that if any individual feels that he needs capital for some activity, and does not have it, he can borrow it, and when the business grows and he makes a profit he can pay it back. The nature of credit in a traditional market economy is, however, a “complex and ramified network of credit balances binding larger and smaller traders together.”[35] Historically, there was a hierarchical ranking of traders in which larger traders give credit to smaller ones and smaller ones have debts to larger ones. As a result traders often preferred expensive private credit to cheap government credit because it gave them a higher position in the flow of trade. Therefore, credit relationships in business can be complicated. The vast majority of today’s microcredit program borrowers are straightforward in their behavior with the major aim being to pay back the loans and get out of debt.

            An important question of what came first – formal credit arrangements or economic development also needs to be addressed. Dichter says that there is ample evidence that growth and development came first. Historically, in the 16^th and 17^th centuries, commercial activity of traders who needed to expand their production was financed by early forms of private banks. Moreover, in the years of the industrial revolution in Europe, beginning in Britain, the role of banks started to evolve as demand on the part of expanding manufacturing and heavy industries for credit increased. As a result, short term working capital and many financial instruments such as overdrafts started to develop.[36] Therefore, it is clear that before the demand for formal credit increased, there was an initial build up of activity in a given sector.

            The startup of business activities in the past were a result of savings and was done through savings that was either the individual’s who started the business, or the savings of relatives and friends of that individual. Dichter tells of a few instances where people have borrowed small amounts from friends and family to start their businesses. He gives the example of Walt Disney’s launch of Disney Brothers: “In 1923, soon after Walt Disney arrived in Hollywood, he and his brother Roy needed funds to launch Disney Brothers. They borrowed $25 from Roy’s girlfriend and $500 from their uncle.”[37] Therefore, savings or borrowing from a close social network has generally been used for business startups.

            Even today, non-bank, informal sources of capital for business start-ups continue to dominate, in developed and developing countries alike. In fact, a survey of 12 developed countries showed that in 2000, an average of 78 percent of funding for business start-ups came from informal sources.[38] The reason behind this statistic is that start-ups are experiments undertaken in the real world; they are not undertaken in a “controlled” environment. Therefore, the result cannot be predicted in advance, they are speculative. Dichter says, “Most people everywhere seem to recognize that reality, beginning with the entrepreneur, which helps explain the preference for self-financing or informal financing even when formal financing my be available.” When borrowing from a friend or a relative the entrepreneur knows that his risk is hedged. Generally, when an individual borrows from people, with whom he has a social connection, the arrangement is “softer” and more risk tolerant.

            Credit offered by microfinance institutions, however, stems from philanthropic or altruistic reasons. As a result, it is significantly easier to obtain credit and far easier terms. Hence, the credit offered is not only riskier but also available to a larger proportion of people. Formal bank credit was historically used by established businesses, only when they had achieved a degree of profitability and were expanding. Since the business was past the start-up stage, the banker could have something to trust in. Moreover, the drivers of economic growth in the United States were not poor people getting access to enterprise credit but the expansion of bigger businesses and industry.[39]

The significant difference between standard microfinance clients of today and real entrepreneurs is the use of credit. While entrepreneurs use credit for investment, credit for the masses through microfinance is largely for consumption. As a result, microfinance institutions often engender among the poor, a practice of spending rather than saving. In eighteenth century Scotland, there were a group of social entrepreneurs who had a vision for the poor. They wanted the poor to know the ills of the “alehouse” and “imprudent expenditures”, and promoted the need for “moral restraint”. Moreover, there were penny schemes offered by banks as a means of training the population in the habits of saving.[40] The poor who were objects of those lessons were the working poor, who had a source of income but needed ways to some away form the “rainy day.” Microfinance, however, in many ways reverses the chronological function of saving and credit. The poor are encouraged to take the loans and are then told about the importance of saving.

However, the view offered by many proponents of credit through microfinance institutions is starkly different. Ernst A. Brugger, in a section from the book ‘Microfinance Investment Funds’ says,

 “Savings from clients could contribute to the growth of MFIs… Over and above reforms in the financial sector, local governments and central banks also have a vital role to play in this context by creating an enabling framework to encourage local banks and financial institutions to invest in the microfinance market. Encouragement may also come in the form of incentives for microfinance investments such as tax break, special rewards, recognition, and concessions.”[41]

Brugger also suggests that stronger central banks rather than a higher proportion of savings will establish public confidence in the banking system in less developed countries. The ideas supporting microfinance, in effect, show that savings “could” have a function, but is not necessary to the success of microfinance institutions.

            Why is it important that the central bank should not intervene, even though savings in less developed countries is so low? Mises explains that the monetary changes introduced via the banking system not only distort interest rates but also generate business cycles. The artificially lowered interest rates stimulate the demand for bank loans over and above the amount of real savings available for lending. This demand is met with inflationary increases in the quantity of money and credit. An inflationary increase, as discussed earlier, will lead to a worsening economy, especially for less developed countries.

Potential for Microfinance

            Can it be argued that the functions of microfinance institutions are insignificant? Yes and perhaps, no. Jeffery Tucker suggests that commercial bankers can fulfill the functions of a microfinance institution if they saw the poor as a viable market. In reference to Grameen banks he says: “We are told that Yunus discovered a wonderful new way of making profitable loans to the poor by doing something that all conventional bankers in Bangladesh had overlooked. Half the population lives below the poverty line in Bangladesh. Are we really supposed to believe that banks blithely overlooked millions of poor people out of bias or hatred or snobbery?” Tucker does have a very compelling argument. Nevertheless, there are microfinance institutions in certain less developed countries that know the value of saving and investment in extending credit in the long run.

BancoSol, Bolivia

            Banco Solidario’s focus is mainly on banking rather than the offering of a social service. Loans are made to “solidarity” groups that could include three to seven members. The bank now lends to individuals as well. Interest rates offered at Banco Sol are relatively high. In 1998 when inflation was below 5 percent, loans denominated in bolivianos were made at an annual base rate of 48 percent, plus 2.5 percent charged up front.[42] Clients that show a good repayment performance are offered loans at 45 percent per year. As a result of these rates, the bank does not rely on subsidies, making a respectable return on lending. Moreover, repayment schedules are flexible, allowing some borrowers to make weekly repayments and others to do so only monthly. Loan durations are also flexible. At the end of 1998, about 10 percent had durations between on and four months, 24 percent had durations of four to seven months, 23 percent had durations of seven to ten months and 19 percent had durations of ten to thirteen months.[43]

            Borrowers from BancoSol are far better off than in Bangladesh and the loans are much larger. Average loans are around $900 dollars, which are close to nine times greater than those made to borrowers in Bangladesh. The main reason for this is that the borrowers are the working poor, who are marginally above the poverty line. By the end of 1998 BancoSol was serving close to 81,503 clients, which accounted for 40 percent of the borrowers in the entire banking system.[44]

            The success of BancoSol can be attributed to impressive repayment performance. However trends are starting to change. As the number of non-government organizations has increased, the bank has had more competition. Easier access to credit has made borrowers lethargic and reluctant in their payments.

 

 

Rakyat Indonesia

            Rakyat Indonesia, like BancoSol, is a financially self-sufficient and also lends to the poor who are “better off”. Moreover, average loan sizes were around $1000 in 1996.[45] Unlike other microfinance institutions, these banks require borrowers to put up collateral, so the very poorest borrowers are often excluded. Nevertheless, their operations remain small scale, and collateral is often defined loosely, allowing staff for some discretion to increase loan size for reliable borrowers who may not be able to fully back loans with assets. Repayment rates for Bank Rakyat Indonesia have also been high, with 97.8 percent of borrowers repaying their loans in 1998.[46] The bank now serves about 2 million borrowers and 16 million depositors.

            The importance of saving is central to the success of Bank Rakyat. Their main source of funds are general deposits from the general public, which account for approximately 75 percent of the loans.[47] Moreover, loan officers often get to know clients over time, starting borrowers off with small loans and increasing loan size conditional on repayment performance. Annualized interest rates are 34 percent in general and 24 percent if loans are paid with no delay.[48]

            Bank Rakyat does not see itself as a social service organization – it aims to earn a profit and sees microfinance as a good business. In 1995, the unit desa program earned $175 million in profits on their loans to low-income households.[49] In fact, repayment statistics show that people of lower income had a larger repayment rate than corporate borrowers.

 

 

The case of donor money

            The functions and operations of Bank Rakyat Indonesia and BancoSol have certainly been huge successes in their respective countries. Moreover, this success is amplified because of minimal government intervention in these banks. Nevertheless, there have been other banks and NGOs that have had minimal intervention from the government. They, however, are subsidized by donors. While there is no inherent problem with donor money providing support for microfinance institutions, often times the donations are of such immense quantity that microfinance institutions cannot put them to adequate use. Moreover, donor control over these institutions increases and affects the day-to-day functions of these banks. Jonathan Morduch says that in 1997, when microfinance was on the rise, “a high profile consortium of policymakers, charitable foundations, and practitioners started a drive to raise over $20 billion for microfinance startups in the next ten years. Most of those funds are being channeled to new, untested institutions, and existing resources are being reallocated from traditional poverty alleviation programs to microfinance. With donor funding pouring in, practitioners have limited incentives to step back and question exactly how and where monies will be best spent.”[50]                        

Conclusion            

            Over the last decade the popularity of microfinance has steadily increased. It is often justified on the grounds that it is a free market solution to poverty. Muhammad Yunus has often claimed to be deeply influenced by the free market, but also concedes that it neglects the poor. He says: “…I saw how the market liberates the individual and allows people to be free to make personal individual choices. But the biggest drawback was that the market always pushes things onto the side of the powerful.”[51] Yunus fails to realize that the market by its nature does not distinguish between the powerful (or rich) and the poor.

            In fact, many microfinance programs such as Grameen banks are partially run by the government and in no way can be labeled a free enterprise. Moreover, the claim that not only the poor benefit but the banks earn profits as well has not held true over the last decade and is unsubstantiated. Therefore, economic expansion and development have not materialized as a result of microfinance in my less developed countries. Wealth creation can only come about through the forgoing of present consumption for latter, which essentially is saving.

                 The functions of microfinance institutions, if at all needed, should be limited to offering newer and effective modes of saving for the poor. Moreover, strong leadership, that banks such as BancoSol in Bolivia and Bank Rakyat Indonesia have displayed, should lead to the aversion of government assistance.  

 

 

 

 

 

 

 

Bibliography

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Chodorov, Frank. Ludwig Von Mises Institute. 1962. http://www.mises.org/etexts/taxrob.asp (accessed December 8, 2007).

Dichter, Thomas. A Second Look at Microfinance. February 15, 2007. http://www.cato.org/pub_display.php?pub_id=7517 (accessed December 9, 2007).

Goodman, Patrick. "Microfinance Investment Funds: Objectives, Players, Potential." In Microfinance Investment Funds, by Ingrid Matthaus-Maier, 11-45. Frankfurt: Springer, 2006.

Kloppenburg, Norbert. "Microfinance Investment Funds: Where Wealth Creation Meets Poverty Reduction." In Microfinance Investment Funds, by Ingrid Mattaus-Maier and J.D. von Pischke, 1-5. Frankfurt: Springer, 2006.

Mises, Ludwig von. The Theory of Money and Credit. Indianapolis: Liberty Fund, 1981.

Morduch, Jonathan. "The Microfinance Promise." Journal of Economic Literature, 1999: 1569-1614.

Torre, Mario La. "The new conception of microfinance." In Microfinance, by Gianfranco A. Vento Mario La Torre, 1-19. New York: Palgrave Macmillan, 2006.

Tucker, Jeffery A. Microcredit or Macrowelfare - The Myth of Grameen. November 8, 2006. http://www.mises.org/story/2375 (accessed 12 8, 2007).

Yunus, Muhammed, and Alan Jolis. Banker to the Poor. London: The University Press Limited, 2001.

 

 

Tags: microfinance, Muhammed Yunus, poverty