Microfinance for poverty alleviation: do transnational initiatives overlook fundamental questions of competition and intermediation?

Abstract

Numerous microfinance organizations aim to alleviate poverty in developing countries. However, debate persists about their effectiveness and sustainability. In this policy-oriented article we aggregate findings from two studies in Indonesia that help explain why moneylending still thrives when low-interest microfinance is widely available, and why the poorest borrowers benefit less than the less-poor. Our research includes borrowing across formal and informal sources, and triangulates the perspectives of borrowers with those of formal and informal lenders. We find that the importance to borrowers of key characteristics of informal lending is insufficiently recognized, and that inappropriate human resource management in formal microfinance organizations and informal intermediation are significant problems. We discuss implications for microfinance policy with reference to United Nations sustainable development goals and offer suggestions for further research.