Major

Economics

Advisor

Arthur Mead

Advisor Department

Economics

Date

5-2012

Keywords

Microfinance, microcredit, poverty reduction, profit, women’s empowerment.

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Abstract

I never expected my first experiences with course content related to my majors to be so traumatic. A young 19 year old, it seemed that every class I attended accosted me with the existence of yet another problem. War, government, education, climate change… The problems were massive and all seemed intractable. One particular “problem” that plagued me was global poverty; how could one billion people in this world live on less than one dollar a day? The theories were numerous, and the classroom discussion seemed a far cry from the reality of so many people living in extreme poverty. I came to realize that the theories help formulate the solutions, but I still wondered, what was life like out there in the real world; how do we solve these problems on the ground level?

Microfinance looked like the perfect bridge between the academic world and the real world. Microfinancial institutions (MFIs) offer small loans free of collateral, which are meant to help small-scale entrepreneurs break the cycle of poverty. Staff and/or volunteers work in communities, building relationships with the borrowers. The microfinancial scheme seemed an ingenious solution of global change achieved by local action.

On a trip to Oaxaca, Mexico in January 2012, I viewed how a small MFI (Fundación en Vía) operates and I visited the borrowers’ businesses and heard their future plans and goals. Inspired by the personal interaction, I was eager to continue studying the topic. The goal of my study was to gain an in-depth knowledge of microfinance and how it has performed since its inception.

This project is an assessment of microfinance as a development tool. After a brief history, I will review the goals of microfinance as formulated at the Microcredit Summit of 1997 and examine the progress that has been made. The first section will analyze how microfinance has performed as a poverty reduction tool. The second section will discuss the profit-aspect of MFIs and the question, should MFIs be fiscally self-sustainable? The third section will look to see whether women, the primary recipients of microfinance loans, have been empowered through their participation in MFI programs.

This review has helped me enhance my research and writing skills. It has also provided me valuable knowledge of the microfinance world and its institutions; which has translated into knowledge of other issues such as moral dilemmas faced by non-government organizations and self-described social businesses, women’s empowerment, and poverty. Critically, I gained a relatively unbiased view of microfinance.

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