“Financial inclusion does not come easily”:An institutional analysis of the development of the microfinance markets

Microfinance has grown from a niche development intervention in the 1990s to one that commands global influence and donor support. By 2006 microfinance had become part of financial sector development policy through the concept of financial inclusion. At the same time theoretical analysis of economic development increasingly focused on the role of institutions and getting institutions right - including for the financial sector – which has given rise to attempts to theorize gradual institutional change. This convergence of policy, and theoretical emphasis on institutions, raises the central question as to what institutions and institutional changes are necessary for the financial sector to effectively serve poor people. The experience of microfinance sector growth over a decade in two countries has been investigated using a ‘micro-ethnographic’ methodology to respond to this question. The research finds that a focus on institutional functions rather than institutional forms aids definitional precision and allows comparability across markets. Social norms underpinned the development of institutional functions, as theories of social embeddedness suggest. These norms also became integrated into institutional functions through the process of change, adding to critiques of externally imposed ‘best practice’ institutional blueprints. Further, beyond the widely accepted institutional functions which the rest of the financial market needs to operate efficiently, this research highlights the importance of a constitutional function (or law) to include poor people in the formal financial system, appropriate supervision for microfinance providers and support for the development of microfinance. Recent theories of institutional change offer insights beyond path dependency in identifying spaces for change and how changes will ‘stick’. However, to better analyse change at the level of particular institutional arenas, greater elaboration is needed of: how to incorporate multiple sets of agents (including external development agents) and multiple institutional functions; appropriate time-frames for analysis and processes of actor engagement.EThOS - Electronic Theses Online ServiceGBUnited Kingdo

Towards a plural history of microfinance

This paper is concerned with the recent history of microfinance, both for itself and as a case study of the evolution of development ideas and activities. Doing justice to this history, and to all those involved in it will not be easy. Rather than aiming for a full narrative this paper asks what kinds of histories might be told, and with what evidence. The paper contrasts two dominant but oppositional narratives: a mainstream account rooted in neo-classical economics that has applauded the successes of microfinance in expanding financial market opportunities; and a political economy critique that highlights new opportunities for exploitation. We illustrate the differences with particular reference to recent developments in India, before turning to the potential for a more inductive and plural account. A more plural history of microfinance emphasises geographical variation in the expansion of financial services, the influence of prior social relations among users, the organisational culture of suppliers and the political economy of regulation. It is also consistent with the variability and contestability of available empirical evidence about the impact of microfinance over space and time. We illustrate this by drawing on a selection of doctoral research studies, and conclude by cautioning against universal narratives of either successful financial inclusion or adverse incorporation

Towards a plural history of microfinance

The paper reviews different ways of telling the history of microfinance. We first contrast a mainstream and mostly positive narrative with a radical critique, illustrating differences with reference to India. We then argue for a more inductive and plural account, drawing on a set of doctoral research studies to illustrate variation in the evolution of microfinance experience according to social relations among users, organisational culture of suppliers, and the political economy of regulation. A global narrative of movement towards total financial inclusion - benign or otherwise - will not do justice to this diversity, nor should the history of microfinance be dominated by one overarching global perspective