Can an Agenda for Economic Development Be Premised on an Aggressive Program Built around Microfinance?

Abstract

This study provides formal theoretical evidence that an agenda for economic development of a `Village' that is built around an aggressive foray into provision of Microfinance is more likely to fail, than to succeed. The Microfinance strategy fails, because any businesses formed by `Villagers' have character of gambles on future consumption. In presence of this outcome, there is little to no chance that Villagers transform into professional entrepreneurs. In equilibrium, there is not any supply-side or income multiplier effect from Microfinance, and there is not arrival at any beneficial transformation to structure of economic activities. In absence of the two stated effects, with exclusion of infrastructural development, which does not reside in purview of Microfinance, there is not arrival at any meaningful economic development. The study proffers some theoretically motivated metrics, estimates for which can be focus of empirical studies. In presence of such metrics, `impacts' of Microfinance programs around the world are more directly comparable.