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By expanding access to financial services, microfinance works to lift people out of poverty. Traditional banks generally can’t afford to serve the poor because of the associated maintenance costs. Small loans are inconsequential for banks, which also aren’t incentivized to design products for small savers. But for low-income people struggling in the developing world, a loan of $50 can be the means to start a business and climb out of poverty.
The isolated and disconnected nature of MFIs means that they’ve been able to focus on building trust in local networks, but it also means that they don’t always have ways to talk to each other. Connecting these dots is a huge opportunity.
While the microfinance movement is still formulating a coherent theory of change, and while the final impact of individual MFIs on communities vary, one thing is abundantly clear: MFIs have the potential to act as experimentation hubs around financial services for the poor, especially if we start linking those hubs so MFIs can share information and work together.