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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23 pages
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.
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