Donors' support for microcredit as social enterprise: A critical reappraisal

The donor community has enthusiastically embraced the concept of microfinance as a promising mechanism to attain the objectives of poverty alleviation and microenterprise development. Amid the high expectation, a myth has been inadvertently created that they could be the ultimate solution to poverty reduction. The objective of the paper is to examine the nature of support rendered by the donor community to microfinance programmes and the effectiveness of this particular outlet of official aid for microenterprise development and poverty alleviation. To this end, the paper first examines economics of microfinance as an instrument of microenterprise development and poverty reduction as well as its delivery mechanisms. The paper then assesses empirical evidence of the performance of microfinance institutions and their impacts on poverty alleviation and microenterprise development. Given this background, the paper discusses main features and trends in donor support and policy implication of the analysis for the donor community.