The Economics of Microfinance

"The Economics of Microfinance is the book that I would love to have had when I was in those shanty towns in Managua. It is written by economists, but in a way that non-economists can easily understand. It asks and answers questions about poor people and the way they handle money. For example, why would poor people need to save when they have so little money to start with? Why did banks ignore the poor for so long, and why was it left to other kinds of organisations to develop financial services for poor people? Why did most microfinance providers work almost exclusively with women to begin with? If you are at all interested in questions like this, Morduch and Armendáriz’s book is a very good place to start. It is uniquely human-centred. Many economic development strategies, including very successful ones such as the rapid industrialisation that China and other tigers have used in recent decades, tend to treat human beings as just one of several inputs. Microfinance puts ordinary poor people at centre-stage. Those who offer microfinance services have come to realise that it is no good lecturing the poor. Decades of experience show that, on the whole, the borrowers and savers are best placed to decide what to do with the money, since only they have a comprehensive understanding of the circumstances of their household."