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Development Finance · Impact Investing · Microfinance · Poverty
Microfinance, once heralded as a solution to global poverty and backed by Wall Street, has largely failed its core mission, with a $219.7 billion global portfolio showing little to no overall income boost for its 140 million borrowers by 2025.
The sector, pioneered by Nobel laureate Muhammad Yunus, attracted significant investment from Wall Street and development banks due to high interest rates, which can exceed 100% in Latin America. Average borrower debt nearly doubled to $1,381 since 2009.
Academic studies, including one in Ethiopia, indicate declining food consumption among borrowers and document negative impacts such as child labor and suicide. Contrary to Yunus's initial vision, many Cambodian microfinance loans over $3,000 are collateralized by borrowers' land.
While supporters maintain microfinance offers useful short-term liquidity, its long-term effectiveness in poverty alleviation is definitively questioned.
