Is microdebt good for poor people? A note on the dark side of microfinance

This note focuses on the ‘downside’ of microfinance: on the way in which some microfinance activities can damage the prospects of poor people. It is not a polemic that argues that microfinance has failed—there is much evidence, not least from my work with colleagues, that it can help many poor people improve their lives. Rather, it is a reminder that those who provide microfinancial services (referred to here as MFIs, or microfinance institutions, but recognizing that many institutions also provide enterprise development or social development services) need to monitor carefully not only their positive impacts but also their negative effects, look to the future, and not rest on their laurels. The ‘microfinance industry’ needs to practice more humility about what it has achieved (outside of Bangladesh it has not even scratched the surface of poverty, for example in Kenya less than 70 000 people out of an estimated 9 to 10 million poor people have access to microfinance) and deepen its understanding of the financial service needs of poor people (see Rutherford in this issue).