Microfinance and financial inclusion: Challenges and opportunities

• DOI: http://doi.org/10.1002/jsc.2339
• Author: Arvind Ashta,Carlo Milana
• Date: 01 May 2020
• Published date: 01 May 2020

OVERVIEW ARTICLE

Microfinance and financial inclusion: Challenges and

opportunities

Carlo Milana

1

| Arvind Ashta

2

1

Birkbeck College, University of London,

London, UK

2

Burgundy School of Business, Université

Bourgogne Franche-Comté, Dijon, France

Correspondence

Carlo Milana, Birkbeck College, University of

London, Malet Street, Boomsbury, London

WC1E 7HX. UK.

Email: c.milana@bbk.ac.uk

Abstract

Lifting the poor from poverty through financial and social inclusion is the ultimate

target and raison d'etre of microfinance. As the most recent literature has recognized,

microfinance institutions have economically worked well in operating microcredit,

but the aim of raising the living standard of their indigent clients has not been gener-

ally met. The expected encouragement of entrepreneurship from microcredit is still

not detected in the empirical data, let alone women's social integration in working

activities. The articles collected in this thematic issue bring new empirical elements

of discussion pointing to many aspects of the social divides and the inequalities that

plague the emerging countries. This overview article recalls the main questions that

are still open and the framework of topics discussed in this thematic issue.

1|MICROFINANCE

A half-century ago, the first modern-day microfinance institutions

based on collateral-free group lending were born. Since then, we have

seen these institutions grow, and with this growth, there has been

first hope, then despair, and finally, a colder acceptance of their possi-

bilities. The hope was that giving small loans to poor people will help

them start their way out of poverty (Morduch, 1999). The despair

came when the microfinance institutions showed how much profit

could be made: if all the profits were made off the backs of the poor,

has microfinance done any good to the poor (Angelucci, Karlan, &

Zinman, 2015; Ashta & Hudon, 2012; Ashta, Khan, & Otto, 2015;

Attanasio, Augsburg, de Haas, Fitzsimons, & Harmgart, 2015; Augs-

burg, de Haas, Harmgart, & Meghir, 2015; Banerjee, Duflo,

Glennerster, & Kinnan, 2015; Bateman, 2010; Crépon, Devoto,

Duflo, & Parienté, 2015). Finally, reality has sunk in that this is busi-

ness as usual: if the poor take loans, then they must be thinking that

these are useful, and if they can repay the loans, then they must have

made enough money (Gutiérrez-Nieto & Serrano-Cinca, 2019). There

will always be a few smart operators on both the supply side and the

demand side, but in general, microcredit works well. It works espe-

cially well for the institution if it can be accumulated with other finan-

cial services such as microsavings, microinsurance, and

micropayments (Bergsma, 2011; Chikalipah, 2018; Davis, 2012; Del-

gado, Parmeter, Hartarska, & Mersland, 2015; Tavanti, 2013). It works

well for the client if, in addition to microfinance services, he can also

be provided with human capital and social capital in the form of liveli-

hood training and access to markets, respectively (Bradley, Mcmullen,

Artz, & Simiyu, 2012; Lam, Zhang, Ang, & Jacob, 2020; Rajasekhar,

Manjula, & Suchitra, 2017). A graduation approach to exiting poverty

is recommended (de Montesquiou, Sheldon, & Hashemi, 2018;

Hashemi & de Montesquiou, 2011; Sulaiman, Goldberg, Dean, & de

Montesquiou, 2016).

Along with thisshift, we have seen, more or less,the end of donor-

based microfinance. There is still somecharity, but it is more or less on

crowdfunding websites where the lender does not take any interest,

although the website may charge the microfinance institutions a subsi-

dized rate of interest. Subsidized interest rates are still available from

large organizations such as Oikocredit, but these are no longer in the

news. There is thesentiment that fluctuating donations create risks for

a microfinanceinstitution (D'Espallier, Hudon, & Szafarz, 2017). Indeed,

the large profitsof microfinance institutions, heraldedby the successful

IPOs of Compartamos in 2007 andSKS in 2010, has opened theway to

commercial financing of microfinance (Cull, Demirgüç-Kunt, &

Morduch, 2009). Private placements, IPOs, and securitization deals are

now commonplace in the microfinance industry.

Outreach has increased so much that no one is counting it any-

more at the global level. The increase in outreach has undoubtedly

JEL classification codes: G21, G31, O16, O12, L25, I38.

DOI: 10.1002/jsc.2339

Strategic Change. 2020;29:257–266. wileyonlinelibrary.com/journal/jsc © 2020 John Wiley & Sons, Ltd. 257