Paper

The Long Term Impact of Microfinance on Income, Wages and the Sectoral Distribution of Economic Activity

What are the long-term effects of small-scale lending?
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This paper analyses the long-term effects of improved small-scale lending, often provided by MFIs set up with the support of development aid.

The analysis shows that some common assumptions about microfinance are not true at all:

  • First, it shows that the impact on income will accrue not to the microenterprises themselves, but rather to the consumers of their products;
  • Second, microfinance will have a significant positive effect on the wage levels of employees in the informal sector;
  • Third, microfinance will cause high growth rates in the informal production sector, whereas the trade sector will either contract
    or at best grow very little.

[From the Author]

About this Publication

By Tschach, I.E.
Published