How Microcredit Went from ‘Silver Bullet’ to Useful Tool in the Financial Services Toolkit

By Joanne Lu

Pro Mujer staff confer with their clients

At this village bank meeting in Peru, Pro Mujer staff confer with their clients. Pro Mujer is a development and microfinance institution that issues credit through group-based loans. The organization also provides preventive health education and basic health screening services. Photo courtesy of Global Partnerships.

SDG goals iconWhen economics professor Muhammad Yunus lent $27 to a group of impoverished villagers in Bangladesh in 1974, he ignited a firestorm of excitement in the global development world that would later earn him a Nobel Peace Prize and the title, “Father of Microcredit.” But over the last couple of decades, enthusiasm for microcredit has waned. And although it remains a significant development program, microcredit – and the often used broader term, “microfinance” – is now part of an ever-evolving suite of financial tools designed for the world’s poor.

From the 1980s to the early 2000s, small loans to the world’s poor were heralded as a silver bullet for global poverty. By late 2010, however, international excitement for microcredit had begun to turn critical.

David Roodman – a senior advisor at the Open Philanthropy Project and former senior fellow at the Center for Global Development – wrote in a 2012 opinion piece for the Washington Post that the “proliferation of fast-growing microlenders had made it easy for poor men and women to get in over their heads in hundreds of dollars of debt.” Without credit bureaus to manage over-indebtedness, and with lax banking supervision, some institutions put profits before people, the antithesis of the original vision.

The “zeal for microcredit,” Roodman felt, had blinded many in the industry to the bigger solution – financial services, not just loans, for the poor. These include, for example, savings, insurance and financial literacy classes. “Financial services are like clean water and electricity – they are essential to leading a better life,” says Roodman.

And that’s where the general verdict on microcredit has landed in 2019. Several studies have found fairly consistent “modestly positive, but not transformative, effects.” Although microcredit hasn’t managed to pull millions of people out of poverty, it has – and continues to – play an important part of their everyday lives. Sometimes it’s a safety net for emergencies; sometimes it helps them put food on the table or keep their kids in school; other times it’s the boost they need for a large purchase. Whatever the reason, access to small loans and other financial tools have changed (for the better) how the world’s poor are living from day-to-day.

But development organizations are taking financial inclusion further now, with the hopes that the effects can be truly transformative for the families and businesses of 1.7 billion people around the world who still do not have access to formal financial services. One way organizations are expanding access is through technology.

The Mifos Initiative was born out of the Grameen Foundation when it became apparent that financial empowerment required more than just microcredit. To that end, Mifos launched an open-source platform to help microfinance institutions become “modern and digitally connected providers of financial services to the poor.” But the organization is also working on making sure that digital financial tools are not only available to institutions, but also to end users through an integrated digital payment system.

The introduction of digital payments – mostly through mobile phones – in the developing context has begun to open up many avenues for financial inclusion. Lower transaction costs have made it more viable for banks to serve the poorest of the poor. Digital payments also make it much easier and faster for overseas workers – and aid organizations – to send cash to families in remote areas.  Additionally, the ability to audit payment flows digitally can help improve accountability and transparency.

Seeing this and the challenges in financial inclusion at scale, the Bill & Melinda Gates Foundation, through its Financial Services for the Poor program, is expanding the reach of low-cost digital financial services for the poor. Without focusing on a single product or platform, the program works with government and private-sector partners around the world to foster environments that promote the growth of digital financial services and develop systems that work best for each context.

But in many contexts, the poorest of the poor are illiterate and innumerate. This means that in order for them to use digital payments, they need to rely on others for help or they must learn work-arounds that can result in mistakes, such as transferring the wrong amount to the wrong person. The Boma Project has been exploring solutions to those barriers, such as more visually-based tools (e.g. images of cash bills, instead of just numeric values); text-to-speech options; voice recognition for verification and even numeracy training programs.

Mercy Corps is also partnering with Facebook to explore the possibilities of a new global, digital currency as a way to revolutionize financial inclusion. For people living in countries struggling with conflicts, natural disasters and political instability, this new currency – Libra – could offer financial stability as a low-volatility global currency. And as a fully digital currency with low transaction costs, Libra could also make the global cash transfers much cheaper, especially for poor communities that rely heavily on remittances. The blockchain technology on which the currency will be built could also make aid more efficient, transparent, and accountable.

But beyond just giving financially-strapped families better access to financial services, the original vision of microcredit and microfinance was to lift people out of poverty by supporting their microenterprises. Impact investors are now taking that one step further by investing capital in companies and organizations that will generate a positive social or environmental impact along with a financial return.

Global Partnerships uses the term “impact-first investing” to describe how it prioritizes the “highest possible social impact, while seeking to preserve capital with a modest financial return for investors.” The organization uses philanthropic capital to invest in social enterprises in Latin America, the Caribbean, and sub-Saharan Africa that deliver products and services to empower people living in poverty to improve their lives. As of March 2019, Global Partnerships has invested in 135 cumulative social enterprises.

Similarly, large global investment firms like Capria are also supporting positive social and environmental change through impact investments. Capria runs a network of fund managers who back early-growth businesses in emerging markets. Currently, the Capria Network includes 16 fund managers, investing in 37 countries in Africa and the Middle East, South and Southeast Asia, and Latin America. In addition, members of the Capria Network share knowledge and connections with each other to maximize impact, reach and best practices.

But others like Einstein Rising in Africa and Upaya in India take a more hands-on approach with the entrepreneurs they support. Both organizations offer accelerator programs to help entrepreneurs fully develop their companies, then offer investment to select participants. Not only do these businesses improve the lives of the entrepreneurs, they also create thousands of jobs for those on the margins of society.

And that’s exactly the founding idea of microcredit – that a small amount of money can have a compounding positive impact on the life of someone living in poverty. Although the promises of microcredit haven’t panned out exactly as Muhammad Yunus envisioned, they have inspired the development of a host of innovative financial inclusion tools and social enterprise strategies. With all these ideas combined, perhaps one day everyone can emerge from the shadow of poverty.

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The following Global Washington members are working to increase access to financial services and income-generating activities in some of the poorest parts of the world.

3rd Creek Foundation

3rd Creek Foundation is a private family foundation focused on global poverty alleviation through grant-making and impact investing. More specifically, the foundation supports early stage programs that create sustained economic opportunity and dignity for the ultra poor.


Awamaki teaches women’s artisan cooperatives in the rural Andes how to start and run their own businesses, connecting the cooperatives to markets and providing training in product development and business management. They create alpaca accessories, woven bags, and home goods. Awamaki supports 180 artisans who are lifting their families out of poverty.

Bill & Melinda Gates Foundation

The Bill & Melinda Gates Foundation’s Financial Services for the Poor program aims to play a catalytic role in broadening the reach of robust, open, and low-cost digital payment systems, particularly in poor and rural areas—and expanding the range of services available on these platforms.


Capria is a global impact investment firm managing multiple funds that accelerate the flow of capital to deliver superior returns in emerging markets.


Dalberg is a global group working to build a more inclusive and sustainable world where all people, everywhere, can reach their fullest potential.

Einstein Rising

Einstein Rising empowers Africa’s social entrepreneurs through its SME business development curriculum and provides access to startup capital. These wealth creators develop for-profit companies that tackle entrenched social and environmental issues without sacrificing the financial bottom line.

Global Partnerships

Global Partnerships is an impact-first investor, dedicated to expanding opportunity for people living in poverty. For 25 years GP has invested in sustainable solutions that help impoverished people increase their incomes and improve their lives, with core investments in livelihoods, education, health, energy, housing, and sanitation.

Grameen Foundation

Grameen Foundation is a global nonprofit that empowers the poor, especially women, to end poverty and hunger. It creates breakthrough solutions – spanning financial, agricultural and health services – that leverage digital technology and local partner networks to bring people the tools and opportunities they need to help themselves

Initiative for Global Development

The Initiative for Global Development (IGD) engages and harnesses the power of the private sector to create sustainable growth and alleviate poverty in Africa.


Largesse is a mission-driven business that specializes in curating beautifully presented handmade, eco-conscious and/or fairly-traded corporate gifts. Largesse helps corporate gift buyers find unique solutions for executive gifts, incentive rewards and promotional products that align with and reinforce their brand values. Largesse’s mission is to create sustainable economic opportunities for marginalized and talented artisans across the world by giving them equal access to the global marketplace of corporate buyers.

Mercy Corps

In times of crisis, Mercy Corps supports people who lack access to financial resources with cash assistance. Last year, Mercy Corps connected more than 1.1 million people (191,000 families) to cash during emergencies, infusing more than $32 million into local economies around the world.

Mifos Initiative

The Mifos Initiative provides education, training, and tools to enable charitable organizations and social enterprises to make financial inclusion more affordable, available, and accessible to the 2.5 billion unbanked poor in the world.

Oikocredit US

Oikocredit is a worldwide financial cooperative that promotes global justice by empowering disadvantaged people with credit.

Path from Poverty

Path From Poverty reaches across cultures to transform lives and communities by partnering with women’s groups; empowering and equipping women to break the cycle of poverty and live into their God-given potential, irrespective of their spiritual beliefs.

Upaya Social Ventures

Upaya’s mission is to create dignified jobs for the poorest of the poor by investing in small businesses in India’s poorest communities. Upaya creates dignified jobs for the poorest of the poor by building scalable businesses with investment and consulting support.