The Economics of Microfinance

by Jonathan Morduch, Beatriz Armendáriz

The microfinance revolution, begun with independent initiatives in Latin America and South Asia starting in the 1970s, has so far allowed 65 million poor people around the world to receive small loans without collateral, build up assets, and buy insurance. This comprehensive survey of microfinance seeks to bridge the gap in the existing literature on microfinance between academic economists and practitioners. Both authors have pursued the subject not only in academia but in the field; Beatriz Armendariz de Aghion founded a microfinance bank in Chiapas, Mexico, and Jonathan Morduch has done fieldwork in Bangladesh, China, and Indonesia. The authors move beyond the usual theoretical focus in the microfinance literature and draw on new developments in theories of contracts and incentives. They challenge conventional assumptions about how poor households save and build assets and how institutions can overcome market failures. The book provides an overview of microfinance by addressing a range of issues, including lessons from informal markets, savings and insurance, the role of women, the place of subsidies, impact measurement, and management incentives. and Latin America and introducing ideas about asymmetric information, principal-agent theory, and household decision making in the context of microfinance. The Economics of Microfinance can be used by students in economics, public policy, and development studies. Mathematical notation is used to clarify some arguments, but the main points can be grasped without the math. Each chapter ends with analytically challenging exercises for advanced economics students.

Genres: Economics, Nonfiction, Finance, International Development, Business

346 pages, Hardcover

First published January 1, 2005

About the author

Jonathan Morduch (born October 3, 1963) is a professor of public policy and economics at the Robert F. Wagner Graduate School of Public Service. He is a development economist most well known for his significant academic contributions to assessing the impact of microfinance since the early years of the movement. He has written extensively on poverty and financial institutions in developing countries and on tensions between achieving social impacts and meeting financial goals in microfinance.

Morduch is the managing director of the Financial Access Initiative, a consortium of leading development economists (including Sendhil Mullainathan at Harvard and Dean Karlan at Yale) that aims to expand access to financial services for low-income individuals in developing countries through research, supported by the Bill and Melinda Gates Foundation.

Morduch is currently chair of the United Nations Committee on Poverty Statistics. He is a member of the editorial board of the World Bank Economic Review and of the UN Advisors Group on Inclusive Financial Sectors. Murdoch also serves on the advisory board of Academics Stand Against Poverty (ASAP).

Reviews

[Theresa Leone Davidson · Rating 3 out of 5]

After a somewhat reckless youth, in which I spent too much and saved nothing, I learned, relatively early, the importance of money, investing it wisely (and conservatively), and living well, well below my means, in order to save the maximum. This, by the way, was learned by watching others: my parents when I was young (but from whom I did not learn enough, otherwise I wouldn't have been reckless later on), and a very good friend, Sharon M., who knew how to save and inspired me to do the same, and my husband, who taught me how to invest and live well but not extravagantly. The point being that money has always interested me, and while I've read a few books about finance, and thought I knew quite a bit, this book makes me feel like I know nothing. While I did finish The Economics of Microfinance with an understanding of how microfinance plays a key role in the economies of many developing countries, providing small-scale entrepreneurs with the access to financing that is so often unavailable from commercial and state banks, a lot of it was too technical and advanced for me to understand more. The evolution of microfinance and the theories behind it were interesting, well written, and somewhat comprehensible; nevertheless, I will have to seek out, next time, something along the lines of Microfinance for Dummies.

[Thu Nga Le · Rating 3 out of 5]

On the surface read for those who are fresh to the topic

[Jesse Morrow · Rating 3 out of 5]

Good intro into Microfinance. Specifically a text book geared toward a grad student or someone with at least Intermediate Microeconomics. It takes a fresh look into the realities of lending, scale, financing, management, gender bias and even subsidies.

Great clear eyed view. But if you haven't had at least two semesters of microeconomics, I'd probably skip this and only read Yunnus's Banker to the Poor.

[Megan · Rating 5 out of 5]

A great text-book or reference book, masterfully written, but certainly not to be undertaken lightly. It unfortunately killed discussion at my microfinance book club for mostly laymen and women - too technical for that forum, as most might guess from the title.

[stephanie · Rating 4 out of 5]

you might not actually enjoy this too much unless you're really into econ/development and have very little idea about microfinance, but it's staying on my must-read list. non econ ppl might prefer billions on bootstraps.

[Chase · Rating 4 out of 5]

If you want to understand microfinance, this is a great place to start. It helps you understand the fundamental economics issues microfinance grapples with and has a balanced view of the success and limitations of microfinance.