Microfinance

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Academy of Management Perspectives

August

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Microfinance: Creating Opportunities for the Poor?
by Susanna Khavul

Executive Overview
Microfinance is an emerging phenomenon that opens access to capital for individuals previously shut out from financial services. In its direct engagement with the poor, microfinance represents a new way for financial capital to potentially stimulate economic growth in developing countries. However, microfinance is poorly understood, and it remains unclear whether it delivers on its promises. The goal of this paper is to introduce the topic of microfinancing to a wider audience of management researchers and to identify opportunities for future research in this new and growing area.

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mages of poverty are ubiquitous. For decades, poverty alleviation has topped the international development agenda. United Nations Millennium Goals state that by 2015 the number of people living in extreme poverty should be half of what it was in 2000 (World Bank, 2000). However, the tools for creating economic growth to move people out of poverty have been hard to come by. Microfinance is now promoted as a means to solve the crushing poverty that faces at least a third of the world’s population. Microfinance spans a range of financial instruments including credit, savings, insurance, mortgages, and retirement plans, all of which are denominated in small amounts, making them accessible to individuals previously shut out from formal means of borrowing and saving. The most widespread microfinancing instrument is microcredit or microlending, which is the issuance of small, unsecured loans to individuals or groups for the purpose of starting or expanding businesses. Microfinancing aims to alleviate poverty by stimulating economic growth through entrepreneurial initiative. The
I am grateful to Garry Bruton and two AMP reviewers for their guidance in developing this article. Evan Lacher provided...