Sustainable Institutions or Sustainable Poverty Targeting: The Case of Microfinance

Microcredit, being the most unique form of antipoverty intervention in terms of its methodology and outreach, has generated considerable amount of disagreements in recent times. While there may be more serious disagreements surrounding microcredit, this article addresses whether or not microcredit has the potential to alleviate poverty, and whether or not the conclusion derived to the first issue is sensitive to interest rate variations. Connecting the already established principles of economics, we show that there is every reason to believe that microcredit has the potential to change the fortunes of the poor communities. However, we also show that this change in fortune can be in any direction, depending on how costly the financial services of the microfinance institutions are felt by the poor.