Microfinance: Points of Promise

A majority of the world’s impoverished lack adequate access to financial services. Typically, formal banks do not target the poor because lending without collateral is considered too risky. Poor households seeking credit are subsequently forced into informal markets where the prices are high, the quantities limited, and the methods of insuring repayment can be brutal. Since the poor arguably need liquidity more than anyone else, their impaired credit access is especially concerning. They face high levels of risk and have almost no savings “buffer,” which means that small income shocks can generate huge consequences for well-being. Furthermore, the majority are engaged in some form of ∗The authors are from Duke University (Field) and Harvard University (Holland and Pande).