Money Matters : Understanding Microfinance

Microfinance - small-scale credit and savings services for poor people - is widely acclaimed as a means of reducing poverty and promoting economic and social development.

In recent years it has become a significant part of numerous anti-poverty initiatives.

At the same time, critics increasinly urge caution, arguing that the benefits of microfinance are often exaggerated.

This paper discusses current debates and reviews recent research concerning the impact of microfinance in the South.

It focuses particularly on poverty and social exclusion, gender relations and children's welfare, and analyses in which positive impacts can be enhanced and negative impacts avoided.

The paper draws on a wide range of experience and examines Save the Children's microfinance projects in the light of current trends and research.

The second part of the paper provides guidelines on: the role of microfinance programmes; setting interest rates; determining appropriate loan conditions; impact monitoring and evaluation; and microfinance programmes in conflict-prone areas.

The paper thus combines an analysis of key issues in microfinance with practical guidance on running microfinance.