Socio-Economic Differences and Deployment of the LDC Micro-Finance Bottom-up Approach in DCs

How Does Microfinance Work?

Micro finance works best with those whose inability to access main-stream financial services either holds them in poverty or puts them at risk of becoming poor. A non-exhaustive selection of poverty at-risk-groups in DCs is given in Table 1.¹

Thus, for MF to work in DCs: 1) difficulty accessing mainstream-financial services must be a cause of poverty; 2) access problems of at-risk groups must be targeted; and 3) the process must be sustainable. If these attributes are absent, DC MF may become an innovative welfare variant and/or boondoggle (mostly benefiting MF providers via employment, power, and status). However, socio-political issues can be as important to those funding MF, as poverty relief. Helms (2006) found that three-of-four common MF-program-funding providers in LDCs are very strongly interested in social development and the fourth is likely to promote itself as having such an interest via government requirements (Goodwin-Groen, 1998; Pitt et al., 2003; Dunford, 2006; Pitt et al., 2006; Deaton, 2009).