Guest Editorial: Does ‘microfinance’ mean what it used to?

Abstract

What does ‘microfinance’ really mean in these days of financial inclusion and digital financial services? Is ‘financial inclusion’ simply a rebranding of ‘microfinance’, that is itself a rebranding of ‘microenterprise credit’? In the 1990s, microfinance became recognized as a set of methodologies that can make provision of financial services to the lower-income, ‘unbanked’ population viable and affordable. ‘Banking for the poor’ involved managing the costs and risks that made commercial banks avoid small financial transactions and informal enterprises – largely by passing them on to clients via solidarity groups and by using dynamic incentives such as short repayment periods and gradually increasing loan sizes. Initially, ‘microfinance’ and ‘microfinance institutions’ (MFIs) were virtually synonymous – both implying outside the formal financial system.