Hermes and Lensink (introduction) - Microfinance Its impact...

Microfinance: Its impact, outreach and sustainability
Niels Hermes
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* and Robert Lensink
# ¶
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Centre for International Banking, Insurance and Finance (CIBIF),
Department of Economics and Business, University of Groningen, the Netherlands
¶ Development Economics Group, Wageningen University and CREDIT, University of
Nottingham, UK
Keywords: microfinance, impact, outreach, sustainability
JEL Codes: G21, I32, O12, O16
* Corresponding author : Faculty of Economics and Business, University of Groningen, PO BOX 800, 9700 AV
Groningen, the Netherlands; telephone: [phone]; fax: [phone]; email: [email protected]
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ABSTRACT
This symposium brings together recent empirical contributions with respect to a number of
related and highly relevant issues on the economics of microfinance. In particular, the
contributions provide answers to the following two main questions: (1) Does microfinance
have an impact on the social and economic situation of the poor in developing nations; and
(2) Are microfinance institutions sustainable in the long term and is there a trade-off between
sustainability and outreach?

1. INTRODUCTION
The role of microfinance has attracted significant interest in recent years, both from policy
makers as well as in academic circles. However, as has been pointed out in a recent special
issue on microfinance in The Economic Journal (Hermes and Lensink, 2007), many
questions regarding microfinance remain unanswered. In particular, the following two
pressing issues should receive more attention: (1) Does microfinance have an impact on the
social and economic situation of the poor in developing nations? This question is very
relevant since a lot of effort and resources have been put into developing microfinance,
especially since the beginning of the new millennium, as an instrument to combat poverty.
(2) Are microfinance institutions sustainable in the long term; is there a trade-off between
sustainability and outreach? Again, this is a very relevant question, since putting emphasis on
poverty reduction comes at a price, which may reduce the scope for financial sustainability
and vice versa.
This symposium contains eight original contributions that provide new empirical
evidence on these two issues. First of all, four of the eight contributions address the question
of the impact of microfinance on the well-being of the poor in developing nations. Does
microfinance have a measurable impact on the social and economic situation of the poor in
developing nations? The other four contributions focus on the trade-off between reducing
poverty and being financially sustainable at the same time, i.e. can MFIs finance their own
operations without compromising their mission to reach out to the poor?
The current symposium for World Development elaborates on the special issue in The
Economic Journal (Hermes and Lensink, 2007) in a number of ways. In the 2007 special
issue we primarily dealt with joint liability group lending, providing new insights with
respect to why and how this type of lending works in enhancing repayment rates. We also
touched upon the issue of the trade-off between the financial sustainability and outreach of
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microfinance programs. In this symposium, we provide much more evidence on the trade-off