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Independent research for global prosperity

Microfinance

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In the late 1970s and early 1980s was born a global movement to bring financial services to poor people. First it was called micro-enterprise credit, then microcredit, and then microfinance. In fact, the idea of bringing loans, savings accounts, insurance policies, and money transfer services to poor people was not new. Rather, what defined the movement was the emphasis on businesslike approaches, ways of providing the services that covered costs, which allowed providers to grow and serve millions. Muhammad Yunus, the famed founder of the Grameen Bank, did not invent microcredit anymore than Henry Ford invented the car.

The microfinance movement is one of the most successful ever in the worlds of foreign aid and philanthropy. One reason for its success is the stories it told, of poor women climbing out of poverty through entrepreneurship. But the hype has side effects: credit bubbles in India and other countries; and a brewing backlash as rigorous new studies challenge the claims of poverty reduction.

CGD senior fellow David Roodman set out to peel away the hype in order to understand the subtler truth about microfinance. He approached the task in an unusual way, writing a book in public through his Microfinance Open Book Blog, where he not only posted draft chapters but also shared his intellectual journey in writing the book. In the process he has become a leading authority on microfinance.  Two years and more than 300 blog posts later, Due Diligence: An Impertinent Inquiry into Microfinance, is with the editor and forthcoming in fall of 2011.