Microfinance and Third World Development: A Critical Analysis

Microfinance is emerging as an integral part of the new development paradigm, described by the phrase participation and development. Although the idea has become quite popular among donor agencies, development practitioners, and academicians, theoretical premises on which this idea is founded seem entirely unexamined. Accordingly, this article investigates the academic merits, as well as potential consequences, of this popular poverty alleviating model from the supply-side perspective and asks a provocative question: Do the microfinance ventures have features which suggest that the establishment of this new finance industry in the Third World countries might further complicate their pervasive poverty problems? The answer to this question appears affirmative to be affirmative. First, the microfinance idea is founded on two theoretical premises, both of which are very controversial. Second, the lack of microcredit is not the cause of the Third World\u27s deplorable poverty situation--a fact that suggests that the supply of microcredit cannot alleviate poverty in these countries. Finally, the promotion of the microfinance ventures in the Third World has potentials to create private groups, which have vested interests in perpetuating their prevailing poverty situation