Abstract
Most microfinance institutions (MFIs) give small loans to a large number of people, focusing on group lending. Although this has proven to be successful for the MFIs, the impact on long-term poverty alleviation and the social mission of MFIs has been in question, especially as it relates to helping the “very poor.” Using a comprehensive dataset of 465 MFIs representing 114 countries, we analyze how the size of the loans and the salaries of borrowers impact the performance of MFIs, finding a negative and positive effect, respectively. Based on these results, we then propose an alternative to microfinance strategy that may help recipients of such funds actually improve the lives of a greater number of people in the area in a more sustainable manner.
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