Articles

The microfinance industry is characterized by a "schism," or debate, between two camps that represent broadly different approaches to microfinance: the institutionists and the welfarists. How this debate is resolved has crucial implications for the future of microfinance—its guiding principles, its objectives, its clients, and its impact on the poor and poverty in general.

The institutionist approach, with its emphasis on financial self-sufficiency and institutional scale, appears to have gained ascendancy over the welfarist approach, with its emphasis on direct poverty alleviation among the very poor. The institutionists, however, base their arguments on a number of debatable assertions and questionable empirical methodologies. This article critically examines some of these with the intent of placing institutionist claims in their proper perspective and tempering the hegemonic aspirations of some institutionist writers. It concludes by proposing a middle ground between the two approaches in the hope that it will lead to more productive dialogue between the two camps in the future.

This article examines why the size of average loans in two Latin American village banks has not grown as much as was anticipated—and hoped for. It emerges that some of the demand for credit is met by the village banks' "internal fund," which reduces the amount that is sought from program funds.

There is also a high level of membership turnover in the bank's early years, contributing to a large proportion of new borrowers with small loans. The article describes new measures to increase membership loyalty and borrowing from program funds, including greater flexibility in repayments and savings-only accounts. It also recommends training poor borrowers in rural areas to make better use of their working capital.