Promoting Institutional Innovations in Microfinance: Replicating Theories is Not Enough

Abstract

The wisdom in rural finance has long been that lending to and saving by the poor is doomed to failure: costs are too high, they are not creditworthy and they are not able to save. A number of success stories in microfinance industry (MFI) have changed this pessimistic assessment during the past twenty years or so. Recounting the failure of traditional financial liberalization theory in ensuring the access of the rural poor to the institutional sources of finance, this paper, taking the Grameen Bank (GB) of Bangladesh- the cradle of microfinance movement, as a case study, argues for a continuation of the support towards institutional innovation in MFIs that will help achieve the goal of ensuring the access of the rural poor to the institutional sources of finance.