The Dilemma in 21st Century Microfinance

The rapid expansion of microfinance in the early 2000s, spotlighted by UNESCO’s designation of 2005 as the Year of Microcredit, brought global attention to microcredit as a development tool, while also inviting increased scrutiny. This publication explores a central debate in the sector: whether access to microcredit and related financial services improves the lives of low-income households, or whether easy access to credit, often from multiple sources, risks leading to over-indebtedness and deeper vulnerability.

Drawing on M-CRIL’s long-standing research engagement with microfinance, beginning in the mid-1980s and expanding across India and South Asia, the study uses extensive data to analyze the sector’s growth and performance. A key contribution is the CRILEX index, which tracks microcredit expansion in India, revealing rapid growth in the early 2000s followed by stagnation linked to a series of sector-wide crises later in the decade.