Microfinance Business Resource Materials

Entrepreneurship Law Editorial Team



Product Description (from Amazon):  Despite the popularity of microfinance, it’s a field that remains remarkably under-theorized. Most evaluations carried out by international development agencies, academics, and ‘independent’ researchers focus on tweaking what they see as an already beneficial system. Rarely are the very foundations of microfinance brought into question. Instead, their studies presuppose impact without evidence, ignore potentially important issues, and utilize faulty evaluation methodologies. Bateman and contributors provide critical perspectives on microfinance that reach beyond the desire for technical perfection held dear by almost all microfinance institutions. It charts actual economic and social impacts registered in Southeast Europe to date, both in the context of post-communist transition and post-conflict reconstruction. It examines key cross-cutting issues, providing a more holistic and comprehensive approach to microfinance.


Abstract (from product description at Amazon.com):  In Russia, small-scale entrepreneurship has emerged in response to the collapse of state-ownership and unemployment in the early 1990s. Small businesses typically lack adequate collateral and credit history, making them “unbankable” by the mainstream financial sector. To fund their businesses, micro-entrepreneurs are forced to rely on funds from family and friends, or money lenders. Microfinance institutions of four types have emerged to meet the unfulfilled financing needs of micro-entrepreneurs: commercial banks, specialized NGO-type microfinance institutions, membership-based institutions (such as rural cooperatives and credits unions), and public funds. All four types have enjoyed significant growth in Russia in the past five years, but the industry is still at an early stage of development. Demand appears to far outweigh supply. Microfinance in Russia provides an overview of microfinance in Russia to date, presenting industry trends and identifying key challenges to sustainable growth of the industry.


Abstract:  Documents the experience of seven microenterprise programs in delivering credit and training to low-income people.


Abstract:  Information about microcredit programs, including funding, operations, advocacy and policy recommendations.

Micro Finance and Rural Women Entrepreneurship in India (Suman Kalyan Chaudhury et al. eds., 2012).

Abstract: This book contains a collection of articles touching on various aspects of entrepreneurship as experienced by women in rural India.

NEW PARTNERSHIPS FOR INNOVATION IN MICROFINANCE (Ingrid Matthäus-Maier & J. D. von Pischke eds., 2009).

Abstract (from product description at Amazon.com):  Microfinance has experienced dynamic development. Today, microfinance providers reach close to 100 million clients worldwide and are growing fast. New partnerships expand the impact of microfinance even further. Three types of partnerships are examined in this book, each consisting of a thematic pillar. Pillar I focuses on equity investments in microfinance, especially the possibilities for engaging private investors through structured microfinance investment funds. Rating agencies are involved in providing more transparency in this emerging fund industry. Pillar II focuses on collaboration among microfinance providers, governments, private investors and technology companies which help microfinance institutions to integrate new technologies into their business models, reducing cost and increasing outreach to clients. Pillar III covers micropensions, microinsurance and the role of securitization for the future of microfinance.

Mehnaz Safavian & Aban Haq, Are Pakistan's Women Entrepreneurs Being Served by the Microfinance Sector? (2013).

Abstract (from authors): Financial services are important for women who are starting and growing a business, but in Pakistan microfinance providers (MFPs) are not reaching Pakistan’s businesswomen. Only 59 percent of microfinance clients are women, yet the majority of these loans are passed on the male members of the household – husbands, fathers, and sons. The practice of passing on loans to male household members is quite widespread; women may be bearing all the transaction costs and risks of accessing loans, but are not the final beneficiaries. Second, a very low proportion of female microfinance clients are entrepreneurs. The report explores why businesswomen in Pakistan may not be using microfinance products to meet their start-up and working capital requirements, in spite of identifying access to finance as a key constraint to their business operations. Against this backdrop, access to finance remains the biggest challenge for a woman who wants to start or grow a business. Yet less than a quarter of the entrepreneurs identified through business development service providers were currently borrowing from microfinance lenders. Even among those entrepreneurs that borrow, dissatisfaction is high. Why? Women borrower-entrepreneurs are not able to access individual loan products, but instead are consistently relegated to group lending. But group loans are very costly for a woman who is running a business, and the loans are too small to fulfill working capital needs. Businesswomen are rarely given the opportunity to access individual loan products, which are usually offered exclusively to male borrowers, and women are not given opportunities to graduate from group loans to individual loans over time. Lending practices often are discriminatory, requiring husbands’ permission, male guarantors, and unmarried women are rarely considered as potential clients. Although MFIs understand that women’s inclusion is integral to the objectives of microfinance, the practice of passing on loans raises serious issues about consumer protection for women clients, and the best and most effective solutions to these challenges could and should come from the sector itself. Designing better products that reach the needs of emerging women entrepreneurs could prove to be good business, achieving double bottom-line objectives. Investing in financial literacy and education of both men and women borrowers can help curb the demand for pass-through loans and help lower risks associated with deceptive practices.


Abstract: Provides information in bullet format on key findings from research conducted by the Self-Employment Learning Project.


Abstract (from product description at Amazon.com):  This book discusses the roots of the microcredit revolution, revealing how the pioneering work of people such as Dr. Muhammad Yunus-winner of the 2006 Nobel Peace Prize-is giving hope to billions. The book explores how these small loans, arranged by “barefoot bankers,” enable impoverished people to start small businesses, support their families, and improve local economies. By paying back their loans instead of simply accepting handouts, men and women around the world are continually giving others the same opportunity to change their futures.  The book also examines why traditional charity programs, while providing short-term relief, often perpetuate the problems they are trying to alleviate, and how applying investment principles to philanthropy could be the key to reversing poverty permanently.

Social Entrepreneurship as a Catalyst for Social Change (Charles Wankel & Larry Pate eds., 2013).

Abstract (from publisher): Social Entrepreneurship as a Catalyst for Social Change contains twenty chapters on the impact of social entrepreneurial ventures within a variety of cultural and national contexts. From Brazil to Croatia, from Thailand to Greenland, this book is rare in that it provides a rich landscape in which to imagine additional efforts to bring about positive social change. The case studies cover a broad range of topics with one common theme-how can we learn from what others are doing in the emerging field of social entrepreneurship? The various cases will inspire budding entrepreneurs to new heights of awareness to support the alleviation of poverty in many contexts. Part Two, Lessons from the Field: How Social Entrepreneurial Companies are Succeeding, discusses the similarities and differences that social entrepreneurial ventures and other businesses must face to be successful. Other topics covered include Entrepreneur Bootcamp for Veterans, microfinance, social entrepreneurship education, and development of a culture of social entrepreneurship. Part Three, Going from Local to Global, explores the challenges of a social enterprise as it transitions from a national venture to an international one. The relationship between social entrepreneurship and local business development in places such as Sicily is discussed through case studies. A stage theory of social venture internationalization is put forth. Research connecting social media and social entrepreneurship is used to illustrate the importance of social networks in creating positive social change. Part four, Challenges in Social Entrepreneurship, explores the challenges that social entrepreneurial ventures face. Ethics of intellectual property rights in social enterprises is a focal topic in this section. Social franchising as an approach to social entrepreneurship is illustrated.


Product Description (from Publishers Weekly):  Economics professor Yunus claims he originally became involved in the poverty issue not as a policy-maker, scholar, or researcher, but because poverty was all around him. He stopped teaching elegant theories and began lending small amounts of money, $40 or less, without collateral, to the poorest women in the world. Thirty-three years later, the Grameen Bank has helped seven million people live better lives building businesses to serve the poor. The bank is solidly profitable, with a 98.6% repayment rate. It inspired the micro-credit movement, which has helped 100 million of the poorest people in the world escape poverty and earned Yunus (Banker to the Poor) a Nobel Peace prize. This volume efficiently recounts the story of microcredit, then discusses Social Business, organizations designed to help people while turning profits. French food giant Danone's partnership to market yogurt in Bangladesh is described in detail, along with 25 other businesses that operate under the Grameen banner. Infused with entrepreneurial spirit and the excitement of a worthy challenge, this book is the opposite of pessimistic recitals of intractable poverty's horrors.


Isabelle Agier & Ariane Szafarz, Credit to Women Entrepreneurs: The Curse of the Trustworthier Sex (2010), available at http://ssrn.com/abstract=1718574.

Abstract (from the authors) : Women entrepreneurs are known not only to reimburse loans swifter than men, but also to receive smaller loans. However, on average women have smaller-scope business projects and are poorer than men. A deeper investigation is thus required in order to assess the existence of gender discrimination in small-business lending. This is precisely the aim of this paper. Its contribution is twofold. Firstly, it proposes a new estimation method for assessing discrimination in loan allocation. This method uses the theoretical "double standard'' approach. Secondly, this paper applies a new methodology to an exceptionally rich database from a Brazilian microfinance institution. The empirical results point to gender discrimination. Additionally, it is shown that reducing the information asymmetry through relationship brings no remedy to the curse of the trustworthier sex.

Jose Gabriel Aguilar et al., Entrepreneurship Under Severe Adverse Conditions: The Northwest Mexican Case, 2 Rev. Bus. & Fin. Case Studies 89 (2011), also available at http://ssrn.com/abstract=1950412.

Abstract (from authors): The authors analyzed the performance of marginalized subsistence microenterprises, through dichotomous logistic regressions by maximum likelihood. They tested 52,224 hypotheses, trying to find behavior patterns on microenterprises. The results show that performance is the result of a combination of factors related to the owners and the decisions made by them on their entrepreneurial environment, if measured as an approximation of the success/failure ratio. It is possible to know many of these variables before the business starts. In addition, some variables did not show the expected relation; this suggests that these projects deserve a different treatment than the formal micro and small enterprise. These factors may well influence the design of microenterprises’ assistance programs, micro loans and the establishment of commercial areas that allow an "enhanced" micro entrepreneur profile.

Syed Zamberi Ahmad, Microfinance for Women Micro and Small-Scale Entrepreneurs in Yemen: Achievements and Challenges, 16 Int'l J. Entrepren. & Small Bus. 102 (2012).

Abstract (from journal): The purpose of this paper is to focus on the role and contribution played by microfinance institutions (MFIs) in the development and improvement of women's micro and small-scale businesses in the Republic of Yemen and the extent to which it responds to the needs of its clients. The research is principally based on data from the survey of 117 women entrepreneurs, owners of micro- and small-scale enterprises, who had at least received one support from MFIs programs. To evaluate the effectiveness and significance of the MFIs programs as perceived by these women entrepreneurs, the second phase, in-depth semi-structured interviews were held with 27 respondents. The findings show that microfinance institutions not only aim to reduce poverty but also providing credit to women for starting their business. However, it concludes that women entrepreneurs who obtain microfinance face a number of various problems. The study exposes the overall environment constraining women entrepreneurs on financial fronts and suggests some measures of relief to ameliorate the situation. Women's entrepreneurship, properly harnessed, has great potential as a tool for transforming Yemen economies.

Tom Alberg et al., 2013 State of Entrepreneurship Address: 'Financing Entrepreneurial Growth,' (Ewing Marion Kauffman Foundation, Research Paper, 2013), available at http://ssrn.com/abstract=2212743.

Abstract (by authors): Despite recent innovations in entrepreneurial finance, particularly at the early stage of business creation, many new and young companies continue to face hurdles to acquire capital. The Kauffman Foundation addressed current challenges and opportunities in financing entrepreneurial growth, a key driver of job creation and economic expansion, at its fourth annual State of Entrepreneurship Address on February 5, 2013. The event featured remarks from Small Business Administrator Karen Mills, U.S. Senator Jerry Moran and Kauffman President and CEO Tom McDonnell. In his address at the National Press Club in Washington, McDonnell offered policy recommendations to increase financing of entrepreneurial ventures that are featured in a paper on the same topic. Key recommendations include: Crowdfunding: the Securities and Exchange Commission should approve rules under the JOBS Act that encourage experimentation without excessive regulation; IPOs: greater use of auctions, such as the Dutch auction used by Google, rather than the more common practice of setting a specific price for new stock offerings; Bank Debt: introduce more flexibility into the regulatory process – such as providing the Federal Reserve, Comptroller of the Currency and Federal Deposit Insurance Corporation the authority to make judgment calls at the local level; Regulation: allow shareholders of companies the right to vote whether Sarbanes-Oxley accounting rules are necessary; Venture Capital: create longer-term venture funds that include significant "skin-in-the-game" investment from General Partners, so their interests are aligned with Limited Partner investors over a reasonable time horizon. 

Oya Pinar Ardic et al., Small and Medium Enterprises: A Cross-Country Analysis with a New Data Set (World Bank Policy Research Working Paper Series, 2011), available at http://ssrn.com/abstract=1747441.

Abstract (from author): In the aftermath of the global financial crisis of 2008-2009, there has been an increased interest in the role of small and medium enterprises in job creation and economic growth. However the lack of consistent indicators at the country level restricts extensive cross-country analyses of lending to small and medium enterprises. This paper introduces a new dataset to fill this gap in the small and medium enterprise data landscape. In addition, it provides the first set of results of analyses with this new dataset, predicting the global small and medium enterprise lending volume to be $10 trillion. The bulk of this volume, 70 percent, is in high-income countries. On average, small and medium enterprise loans constitute 13 percent of gross domestic product in developed countries and 3 percent in developing countries. Note that although a unique small and medium enterprise definition does not exist, differences in definitions across countries are not statistically significant in explaining the differences in small and medium enterprise lending volumes.

Arvind Ashta et al., Social Innovation Lessons from Microangels? An Institutional Entrepreneurship Case Study of the CIGALES Movement in France (2012), available at http://ssrn.com/abstract=2031732.

Abstract (from authors): One way by which microentrepreneurs can increase their ability to take debt is to take equity alongside, thus respecting prudent ratios and reducing stress. But microequity has not developed in most of the developing world. At the same time, since 1983, microequity has been started in France through a socially innovative movement known as CIGALES. Today, there are over a hundred CIGALES clubs. How have these multiplied and why hasn't the movement grown faster and more global? The authors look at the development of the CIGALES movement from an Institutional lens. Based on fifteen semi-structured interviews, the authors trace the creation and expansion of the movement and see internal blockages are as important as the external institutional cage (including norms and beliefs) that limited it. They focus on institutional entrepreneurial work undertaken to spread and maintain the movement of microangel clubs rather than actions and projects financed by each individual club. The authors find that catalytic innovation not only requires the institutional entrepreneur to collaborate with other complementary institutions but also to create such institutions. Since poverty eradication is going to require a series of social innovations and their diffusion, this paper could be useful for future development efforts.

Michael S. Barr, Microfinance and Financial Development, 26 Mich. J. Int'l L. 271 (2004).

Abstract (from author): Although financial development can assist with poverty alleviation, and microfinance is a form of financial development that has as its aim poverty alleviation, most policymakers and scholars conduct separate conversations about financial development and microfinance. This Article attempts to bridge that gap. The Article argues that microfinance can play an important role in financial development, and that by focusing on microfinance, development policy can strengthen the links between financial development, economic growth, and poverty alleviation. Rather than focusing exclusively on microfinance as an anti-poverty strategy, microfinance should be seen as an integral component of a developing country's broader financial development strategy. By demarginalizing microfinance programs serving the poor, our international financial institutions, donor nations, and developing countries may be able to more quickly reach the Millennium Development Goals.

David Benson et al., Economic Impact of a Private Sector Micro-Financing Scheme in South Dakota, 36 Small Bus. Econ. 157 (2011).

Abstract (from author): Small business incubation programs, available elsewhere in the US, scarcely exist on the Native American Indian Reservations (NAIRs). Our unique study tests the effects of the Lakota Fund (LF), a private sector small business development initiative on the Pine Ridge Reservation in South Dakota, on the economic development of the NAIRs. Our objective is to determine whether the SBA-like programs (loans, training, and consulting) can improve economic conditions. The 1980-2006 annual county-level data are a natural experiment.

Results indicate that the LF inception and duration significantly raised real per capita income (RPCI)-suggesting not only the success of the LF, but support for the broader notion that privately funded small business initiatives can be used to support economic development of isolated impoverished groups within the US economy.

Jennifer Bruno, Note, Microfinance or Micro-Commercial Banking: The Great Recession's Impact on Women's Access to Microcredit in the United States, 34 Women's Rts. L. Rep. 1 (2012).

 Abstract (adapted): Small entrepreneurial businesses have thrived in what some may consider unexpected places. The sight of villagers suffering in a rural Bangladeshi village inspired Professor Muhammad Yunus to see how he could help them achieve a better life. Professor Yunus met with a local stool maker and learned she received very little for her craftwork. She had no money to buy raw materials and could only obtain a loan from a lender who set the price of her stools extremely low as a condition of the loan. Professor Yunus intervened and provided a loan--minus the exploitive terms--which now offered the stool maker a chance to sell her wares and earn a one-dollar and twenty-five cent profit per day along with the possibility of a better life and an escape from poverty. What began with a small loan to a Bangladeshi stool maker has now blossomed into an alternative lending philosophy meant to elevate poor, primarily female, individuals out of poverty and into lives as successful entrepreneurs. Countries and organizations in both the developing and the developed worlds have taken note of microfinance and since have implemented programs based on Professor Yunus's lending philosophy. The U.S., in particular, has encouraged the development of microfinance pro[HD] grams through both the state and federal systems. This Note explores the evolution of the microfinance lending model, its implementation in the U.S. (specifically in New Jersey), and whether microfinance lending can exist as a powerful tool to help women avoid perpetuating the feminization of poverty. This Note covers three main areas that analyze the disproportionate effect of poverty and access to limited credit as applied to women, the development of microfinance internationally, and the implementation of microfinance-inspired programs in the U.S.

Deborah Burand & David W. Koch, Microfranchising: A Business Approach to Fighting Poverty, 30 Franchise L.J. 24 (2010).

Abstract (from authors): Imagine a franchise network that trains, guides, and supports hundreds of poor women with little or no business experience to become successful business owners. Such “microfranchise” efforts, though relatively small in number, have been gathering steam in the development community and, recently, attracting the attention of the mainstream franchising industry. Advocates have seized on microfranchising as a natural complement or follow-on to the widely acclaimed successes of the “microfinance” sector, which provides small-scale finance services to over 150 million of the world's poor. Microfranchising today is where microfinance was a decade or more ago. It is appropriate at this juncture, then, to ask: What guidance can microfranchising usefully draw from the microfinance experience? The first section of this Article examines lessons learned from the microfinance sector and then traces the origins of microfranchising. The second section explores whether mainstream commercial franchising practices are relevant for franchising that takes place with those living at the base of the economic pyramid. The final section recommends the legal and regulatory environment that can best facilitate microfranchising.

Isobel Coleman, Defending Microfinance, 29 Fletcher F. World Aff. 181 (2005).

Abstract (from author): The reality is that microfinance may be guilty of over-promising and under-delivering, but it is still an effective development tool. First and foremost, microfinance provides financial services to the poor; and the poor, like the rich -- perhaps even more so because of their vulnerability -- benefit substantially from the ability to smooth their income. Second, microfinance has been shown to support a number of other important development objectives -- including improving school enrollments, child nutrition and health, maternal health, and female empowerment. Third, even if most microfinance initiatives require some ongoing support, few other development programs come close to their cost-effectiveness. For all of these reasons, donors should accept microfinance for what it is: not a silver bullet, but an important tool in the development toolkit. The rich world should redouble its efforts to extend additional resources to microfinance, continue to push for regulatory changes to make local financial systems more conducive to microfinance, and search for ways to bring successful programs to scale. Those organizations committed to poverty reduction must focus explicitly on serving the very poor by better tailoring products and services to meet their needs -- even at the expense of other objectives.

Jessica Deihl, Microfinance in Emerging Markets: The Effects of the Current Economic Crisis and the Role of Securitization, 5 Bus. L. Brief (Am. U.) 37 (2009).

Abstract (from author): This past year has boasted the largest global economic recession in recent history. Like falling dominos, many large financial institutions are being forced into bankruptcy, one after another. The United States' government and those abroad, are scrambling for solutions to brace their economies against the resulting financial effects. News circulates daily with somber stories of radical cuts in executive compensation and large-scale corporate layoffs. But, how deep into the global market are the effects of these falling dominos being felt? What have been the consequences to members of the world's lowest income class and what can be done to brace their economic chances at a brighter future?

Nathan Fiala, Stimulating Microenterprise Growth: Results from a Loans, Grants and Training Experiment in Uganda (2013), available at http://ssrn.com/abstract=2358086.

Abstract (by author): Small enterprises may face a number of challenges to growth, including capital constraints, lack of skills and poor self-control. This paper presents the results of a randomized experiment involving microenterprise owners in Uganda designed to explore these constraints. Individuals from a pool of business owners who expressed interest in expanding their enterprises were randomly selected to receive loans, cash grants, business skills training or a combination of these programs. Participants were then followed quarterly to determine the short-run effects on business and household outcomes. The author found that six and nine months after the interventions, men with access to loans with training report 54% greater profits. This effect increases slightly over time and is driven by men with higher baseline profits and ability. The loan-only intervention had some initial impact, but this is gone by the nine month follow-up. The author found no impacts from the unconditional grant interventions. Markedly, there are no effects for women from any of the interventions. Family pressure on women appears to have significantly negative effects on business investment decisions: married women with family living nearby perform worse than those in the control group in a number of the interventions. Men instead benefit from close family proximity and demand labor from the household. The results suggest that highly motivated and skilled male-owned microenterprises can grow through finance, but the current finance model does not work for female-owned enterprises.

Giancarlo Giudici et al., Crowdfunding: The New Frontier for Financing Entrepreneurship? (2012), available at http://ssrn.com/abstract=2157429.

Abstract (adapted from authors):This paper aims to take stock of the extant knowledge on an emerging practice in the entrepreneurial finance landscape: crowdfunding, which seems to play an increasingly important role for the seed financing of entrepreneurial projects. We provide a systematization of what it is known on this theme, which can be useful to scholars, practitioners, and policymakers interested in the phenomenon from different angles. Adopting a phenomenon-based approach, which is deemed to be appropriate when investigating new and rather unexplored phenomena, the authors first review the emergent literature on the theme to single out the aspects that so far have attracted the bulk of scholarly interest. Then, the authors compare the crowdfunding with other forms of entrepreneurial finance. Finally, there is a first survey on Italian crowdfunding platforms. 

Rafael Gomez & Eric Santor, Does the Microfinance Lending Model Actually Work, 9 Whitehead J. Dipl. & Int'l Rel. 37 (2008).

Andrew W. Hartlage, Commentary, Unclaimed Financial Assets and the Promotion of Microfinance, 109 Mich. L. Rev. First Impressions 99 (2011).

Abstract: This commentary argues that states should redirect funds from their respective unclaimed assets divisions to support microfinance and the entrepreneurs that microfinance serves.

Shana Hofstetter, Note: The Interaction of Customary Law and Microfinance: Women’s Entry Into the World Economy, 14 Wm. & Mary J. of Women & L. 337 (2008).

Abstract (from author): This Note examines the complicated relationship between microfinance and customary law. Microfinance, the practice of giving small, collateral-free loans to the poorest members of society, has gained great popularity in the last thirty years. These loan programs specifically target women and use women's traditional emphasis on groups to ensure success. Customary law can hinder microfinance ventures because of the restrictions these laws place on women's roles and responsibilities. Case studies on the Dominican Republic, Morocco, and Bangladesh explore how individual customary laws can hinder microfinance programs and women's micro-businesses. This Note also discusses how microfinance programs act as catalysts of social change, affecting customary laws and women's status in their communities and homes.

Claire Ingram & Robin Teigland, Crowdfunding Among IT Entrepreneurs in Sweden: A Qualitative Study of the Funding Ecosystem and ICT Entrepreneurs’ Adoption of Crowdfunding, (2013), available at: http://ssrn.com/abstract=2289134.

Abstract (adapted from authors): This report is the result of a study commissioned in 2013 by SE, the Swedish Internet Infrastructure Foundation, around how entrepreneurs, and in particular IT entrepreneurs, have responded to the increased availability of crowdfunding in Sweden. Much of the focus in international and regional studies has been on making crowdfunding attractive for potential funders, assuming that it is inherently attractive to would-be entrepreneurs. This report tests this assumption by interviewing entrepreneurs within the IT field in Sweden, as well as other actors within the Swedish start-up funding ecosystem.

Jameel Jaffer, Microfinance and the Mechanics of Solidarity Lending: Improving Access to Credit Through Innovations in Contract Structure, 9 J. Transnat'l L. & Pol'y 183 (1999).

Abstract (from author): Many different explanations have been advanced for MFIs' startling success. One theory is that successful MFIs have relied heavily on "peer pressure" and pre- existing social norms, relying on culture, religion, and "social collateral" to provide the incentives conventionally provided by physical collateral. Another theory that has been advanced is that MFIs' insistence on a "credit-conducive culture" (through, for example, the required attendance at weekly meetings and the required contributions to savings and insurance accounts) is responsible for MFIs' success. Still another theory is that the mainstream banking sector simply miscalculated the economics of microlending, overestimating the associated transaction costs and underestimating the productive capacity of poor people. One legal scholar points to three factors in explaining the success of the Grameen Bank in particular: that it specifically targets the very poor; that it is suitable for use by the very poor, who are often uneducated and illiterate; and that the Grameen Bank's rigid rules prevent the organization from being co-opted by local elite. There is probably merit in each of these explanations. This paper focuses, however, on one of the most innovative practices introduced by MFIs: namely, the practice of bundling loans together through "solidarity lending." Under this system, would-be borrowers form groups (usually of between three and six), within which each member agrees to guarantee the loans of the others in the group. If any one individual member defaults on his or her loan, the other members of the group are required to cover the shortfall. Although not all MFIs operate on the basis of solidarity lending, a large number - including the Grameen Bank in Bangladesh, which is one of the largest and most successful MFIs - use this system. This paper explains why the practice of solidarity lending is likely to have been substantially responsible for MFIs' success in rural credit markets that have historically been avoided by commercial banks and perhaps exploited by local money lenders. Although other of MFIs' policies have certainly also contributed to MFIs' results, this paper attempts to show that solidarity lending alone can explain a large part of the success that MFIs have experienced in increasing the rural poor's access to affordable credit.

Aaron Jones, Promotion of a Commercially-Viable Microfinance Sector in Emerging Markets, 13 Geo. J. Poverty L. & Pol'y 187 (2006).

Abstract (from author): This Article challenges that view, arguing that local governments in emerging markets should consider adopting an affirmative, comprehensive policy package to promote a commercial model of microfinance. The paper discusses the Community Reinvestment Act (CRA) in the United States, a far-reaching law aimed at extending financial services to traditionally "un-banked" groups, as a starting point for considering such a policy for developing countries. The CRA model itself is not likely to be the most appropriate legal approach for developing countries, but some aspects of its implementation provide useful lessons. The Article then discusses various other potential policies for developing countries, drawing on the recent strategies of a few countries, and seeks to outline some generalized considerations for designing such a program. The appropriate mix of policies will of course vary from country to country. But generally, approaches should be designed to maximize a few (often complementary) goals: first, promoting greater provision of services to the "un-banked" as a means of bottom-up development; and, second, developing the entire financial sector, which benefits the entire economy and tends to disproportionately benefit the poor. A third overarching consideration is selecting policies that place minimum strain on what may be limited bureaucratic resources or capabilities. Section I discusses why microfinance is an important development tool. Section II provides a brief overview of the evolution of the microfinance sector in emerging markets. Section III introduces the CRA, one example of a comprehensive approach to microfinance promotion, and considers its suitability for emerging markets. Section IV discusses the appropriate role for emerging market governments in promoting microfinance. It argues that governments can play a more expansive role than many prominent international donors appear to be recommending. This section will first discuss those recommendations. It will then discuss and draw some generalizations about other possible policies, categorizing them, as a simplified conceptual framework, into those that improve the "foundations" for microfinance, those that promote savings and outreach, and those that promote access to credit.

Das Amutha Joseph, Role of Micro Finance and Financial Inclusion (2012), available at http://ssrn.com/abstract=2049642.

Abstract (from author): Microfinance sector has covered a long journey from micro savings to micro credit and then to micro enterprises and now entered the field of micro insurance, micro remittance, micro pension and micro livelihood. This gradual and evolutionary growth process has given a great boost to the rural poor in India to reach reasonable economic, social and cultural empowerment, leading to better life of participating households. Financial institutions in the country have been playing a leading role in the microfinance program for nearly two decades now. They have joined hands proactively with informal delivery channels to give microfinance sector the necessary momentum. During the current year too, microfinance has registered an impressive expansion at the grass root level. The micro finance is an agenda for empowering poor women. Micro enterprises are an integral part of planned strategy for securing balanced development of the economy of the poor women. Rural women’s participation in agro-based activities is much more than what statistics reveal. This is mainly due to the fact that most of the work done by the women at farm and home is disguised as daily chores. Mechanization and easy availability of labor provide more time to energetic women to engage themselves in self-employment or entrepreneur ventures. Rural women are having human and non-human resources to take up an enterprise need one an innovative mind and motivation. Entrepreneurship is the only solution to the growing employment among rural youth. It helps to generate employment for a number of people within their own social system. This is more beneficial for women in rural areas as it enables them to add to the family income while taking care of their own home and livestock centred task. Rural women possess abundant resources to take up enterprises. She has the benefit of easy availability of arm and livestock based raw materials and other resources. Hence, she can effectively undertake both the production and processing oriented enterprises. Entrepreneurship development among rural women helps to enhance their personal capabilities and increase decision-making status in the family and society as a whole.

Sarah B. Lawsky, Money for Nothing: Charitable Deductions for Microfinance Lenders, 61 SMU L. Rev. 1525 (2008).

Ruth Jackson Lee, The Microfinance Movement: Closing the Gender Gap with a Click?, 17 J. Transnat'l L. & Pol'y 171 (2007).

Abstract (from author): In addition to the economic benefits received by individual borrowers, several scholars maintain that extending loans to women has a positive social impact. Advocates of microcredit rely on studies that show that lending money can be particularly important for women in patriarchal societies where the deeply entrenched ideologies perpetuate segregation of the sexes, dictate a strict division of labor and levy a systematic bias of male supremacy. First, microcredit allows women to become self-employed where wage employment is unavailable or difficult for women to access. The independent source of income generated outside the home not only improves quality of life, but also reduces economic dependency on men, enhancing autonomy. Women can come to own assets, including land and housing. Furthermore, by gaining control over material resources, microcredit enables women to contribute to various socio-economic activities and to further participate in the political sphere.

Abu Ikponmwosa Noruwa & Ezike John Emeka, The Role and Sustainability of Microfinance Banks in Reducing Poverty and Development of Entrepreneurship in Urban and Rural Areas in Nigeria, Int'l J. Bus. Admin., May 2012, at 33.

Abstract (from journal): The achievement of good economic growth is anchored around an environment of well focused policies aimed at poverty eradication through the empowerment of the people by availing them of access to factors of production, particularly credit. The study examines the role of Micro-finance banks in reducing poverty and the development of entrepreneurship. Data were collected through structured questionnaires and administered to entrepreneurs (small scale enterprises) and micro-finance banks within the Lagos State area. The study identified high rate of loan default among the SMEs, which poses serious consequences for microfinance banks. It was also established that the challenges facing microfinance banks include, among others, the documentation of credit process, wrong information, identity of the loan applicant, and unstable economic situation in the country.

M. Otoo et al., Micro-Entrepreneurship in Niger: Factors Affecting the Success of Women Street Food Vendors, 13 J. African Bus.16 (2012).

Abstract (from publisher): Micro-entrepreneurship in the informal sector plays a vital role in generating employment and income in West Africa. In this article, the authors examine business success factors for micro-entrepreneurs involved in the production and sale of street foods in Niger, drawing on the resource-based view theory. Business success was measured by size of firm and vendor's perception of enterprise growth. Their results indicate that business experience is an important success factor, while the need for cash is a constraint for business success. A rare resource, limited access to financial assets translates into limited opportunities for growth of these informal micro-enterprises into viable businesses.

Lisa J. Servon, Microenterprise Programs in U.S. Inner Cities: Economic Development or Social Welfare? 11 Econ. Dev. Q. (1997).

Abstract:  The microenterprise strategy marries elements of economic development and social welfare strategies and agendas. This article uses case studies of three inner-city microenterprise programs to demonstrate that the results of this blending are over-whelmingly positive. At the same time, working in the interstices of the economic development and social welfare fields is complex, and the results that programs produce do not fit easily into traditional outcome categories. The programs studied do more to help those who exist at the margins of the mainstream economy than those who are completely cut off from the economic mainstream. They help change the mind-set of people by giving them the hope they need to take charge of their own lives. By helping people begin to think strategically about creating better futures for themselves and providing them with the tools necessary to make that happen, these programs shift the focus of policy from maintenance to investment.

Emmanuel Skoufias, Phillippe Leite & Renata Narita, Expanding Microfinance in Brazil: Credit Utilisation and Performance of Small Firms, 49 J. Dev. Stud. 1256 (2013).

Abstract (adapted from authors): The article takes advantage of the natural experiment generated by the exogenous change in government policy towards microcredit to evaluate the impact of the increased supply of microcredit on the utilization of credit by micro-entrepreneurs. Based on micro-entrepreneurs’ survey and administrative data from a microcredit program in Brazil, the authors show that: the increased supply of microcredit raised formal credit utilization and this does not crowd out the use of informal credit sources; formal credit taking improves business performance; and returns are larger for women- than for men-owned firms, but males employ significantly more workers after taking formal credit than females.

Ilya Tirdatov, Web-Based Crowd Funding: Rhetoric of Success, 61 Technical Comm. 3 (2014).

Abstract (by author): This study serves to bridge the gap between theoretical research of rhetoric and the needs of business communication practitioners by identifying the means of persuasion that can be used by online crowd funding entrepreneurs. Qualitative analysis of thirteen crowd funding project descriptions posted on a major Web site--www.kickstarter.com--was performed to identify specific rhetorical techniques via text coding. The sample included the most-funded projects to date, one from each of the thirteen project categories on Kickstarter. Aristotle’s concept of ethos, pathos, and logos served as a basic framework for developing a more detailed classification of rhetorical means of persuasion used in the projects.

The most-funded projects have been found to contain all three types of rhetorical appeals (ethos, pathos, and logos), subdivided into a total of twelve specific subtypes most commonly encountered in the descriptions from the sample. The subtype definitions have been developed and refined over the course of several reviews. The research data made it possible to create a “rhetorical profile” of a successful crowd funding project description representing a summary of the rhetorical techniques identified during the study. Although this summary reflects a hypothetical all-inclusive case, it can be used as a benchmark when drafting crowd funding project descriptions. The study also identified specific directions for future research that could determine the influence of project description rhetoric on donor decisions.

Gmeleen Faye B. Tomboc, The Lemons Problem in Crowdfunding, 30 J. Marshall J. Info. Tech. & Privacy L. 253 (2013).

Abstract (by author): Crowdfunding, an offshoot of crowdsourcing, is being touted as an alternative to traditional sources of financing for small businesses. Despite all its promise, crowdfunding is not without potential problems. To the extent feasible, these possible issues must be anticipated well in advance so that crowdfunding can fulfill its goal of democratizing access to capital. This paper explores how asymmetrical information in the crowdfunding market can lead to a lemons problem, where high quality startups are driven out of the market by low quality projects. Understanding how the lemons problem can arise is critical in determining what reforms are needed to ensure that small entrepreneurs will continue to have the ability to raise money from the crowd. Part I describes the crowdfunding process and focuses on the equity crowdfunding model. By way of example, we study two popular equity crowdfunding platforms: Grow VC and CrowdCube. Part II describes how the lemons problem is creeping up in crowdsourcing, and explains how a similar lemons problem can occur in crowdfunding. To help prevent information asymmetry, Part III proposes the use of reputation systems, friendship networks, and discussion boards to signal or give clues on the quality of a start-up. Part IV concludes.

Jigna C. Trivedi, An Empirical Study on Role of Micro Finance in Boosting Women Entrepreneurship in Gandhinagar District, 4 Gavesana: J. Mgmt. 43 (2012), available at http://ssrn.com/abstract=2223205.

Abstract (by author): Traditionally women were cornered within the four walls of her house, serving the family and bringing up the children. Her innate talent was often unnoticed, as her abilities were never given a reasonable chance for display, in the organized set up of economic activities. She was always overburdened with domestic chores and unending family responsibilities. A woman turning into an entrepreneur was considered taboo in the Indian society. In other words women were deprived of economic independence and social empowerment. Women are hard workers who have played a dynamic role in the ‘green revolution’ by assisting counterparts in agriculture. The credit of ‘white revolution’ is crowned on women, who domesticated milking animals and offered subsistence to society. The two revolutions displayed engagement of crop farmers and milk farmers in traditional activities, for earning livelihood. Cooperative movement appreciated the laborious efforts of women. Self-employment oriented entrepreneurial actions were boosted through the movement of microfinance. Literary experiences have disclosed that the Self Help Group (SHG) model has proved to be a success, to boost women entrepreneurship. This paper tries to explore the reasons of women turning entrepreneurs and the role of microfinance in assisting women to start micro enterprises. The paper also looks at the reasons of usage of borrowed funds from SHGs for other than business activity. The paper exclusively appraises the working mechanism of SHGs to support women entrepreneurs. The paper brings out the fact that young women are enthusiastic to be a part of SHG. Based on the level of education they carry out conventional and non-conventional business. Some women have borrowed money for servicing their consumption needs. In order to know the true usage of loan, SHGs are recommended to segregate the loan exclusively for business (productive) purpose and loans for unproductive purpose. Some of the members are found parsimonious who prefer savings mechanism through SHGs, here SHGs can differentiate this service from its core activity, of making women self-employed.

Olivia L. Walker, Note, The Future of Microlending in The United States: A Shift from Charity to Profits?, 6 Ohio St. Entrepren. Bus. L.J. 383 (2011).

Abstract (from author): This note explores the feasibility of microlenders in the United States going for- profit and being publicly traded, the challenges they would face, the benefits and costs of going for-profit and public, and what such a model might look like.

Online Resources

Grameen Bank, Data & Reports

Liam Collins, Richard Swart & Bryan Zhang, The Rise of Future Finance: The UK Alternative Finance Benchmarking Report (Dec. 2013), http://www.funginstitute.berkeley.edu/sites/default/files/Rise_of_Future_Finance_1_1.pdf.

Abstract (by authors): Alternative finance activities such as crowdfunding, peer–to–peer lending and invoice trading have emerged as a significant funding mechanism and source of capital in the UK in recent years. Meeting the capital needs of both individuals and businesses, facilitating fundraising activities for civic projects and social causes, alternative finance intermediaries have become online market places where individuals, rather than institutions, work collaboratively to form capital. As the alternative finance market continues to grow in the UK and the government looks to regulate the area, this benchmarking report offers a timely snapshot of this fledgling and dynamic sector in order to understand its size, growth and the fluid development of respective segments. In turn, this report aims to inform regulators, brief policymakers, update industrial leaders and educate the wider public about this growing and important industry.

This benchmarking research is a joint project between Nesta, the University of Cambridge and the University of California, Berkeley. It represents the first intensive, comprehensive and empirical country–level study of an alternative finance market anywhere in the world. Primary data gathering was facilitated by a questionnaire–based survey, which was able to capture more than 95 per cent of all UK–based alternative finance activities such as crowdfunding, peer–to–peer lending and invoice trading. Data on more than 50 alternative finance intermediaries was obtained, including from almost all members of the United Kingdom Crowdfunding Association(UKCFA) and the Peer–to–Peer Finance Association (P2PFA).

infoDev, Crowdfunding’s Potential for the Developing World (2013), http://www.funginstitute.berkeley.edu/sites/default/files/Crowdfundings_Potential_for_the_Developing_World.pdf.

Joyce A. Klein, Ilgar Alisultanov and Amy Kays Blair, Microenterprise as a Welfare to Work Strategy: Two-Year Findings, Res. Rep. No. 3,Microenterprise Fund for Innovation  (2003).

Elaine L. Edgcombe & Joyce A. Klein, Opening Opportunities, Building Ownership: Fulfilling the Promise of Microenterprise in the United States (2005).

Dan Marom, Alicia Robb & Orly Sade, Gender Dynamics in Crowdfunding: Evidence on Entrepreneurs, Investors, and Deals from Kickstarter, Coleman Fung Institute for Engineering Leadership, UC Berkeley College of Engineering (Oct. 16, 2013), http://www.funginstitute.berkeley.edu/sites/default/files/Gender%20Dynamics%20in%20Crowdfunding.pdf.

Other Materials

Caitlin Huston, How to Prepare for Crowdfunding: Running a Successful Campaign Means a Lot of Prep Work and Then Constant Upkeep Along the Way, Wall St. J., Feb. 3, 2014, at R4.

Paul Sullivan, A Financial Backer When a Parent’s Wallet Isn’t an Option, N.Y. Times, June 8, 2013, at B5.

Eleanor Warnock & Takashi Mochizuki, Global Finance: Crowds Lend When Japanese Banks Won’t, Wall St. J., June 27, 2014, at C3.

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