The Economics of Microfinance

The Economics of Microfinance

By Beatriz Armendáriz and Jonathan Morduch





The microfinance revolution, begun with independent initiatives in Latin America and South Asia starting in the 1970s, has so far allowed 65 million poor people around the world to receive small loans without collateral, build up assets, and buy insurance. This comprehensive survey of microfinance seeks to bridge the gap in the existing literature on microfinance between academic economists and practitioners. Both authors have pursued the subject not only in academia but in the field; Beatriz Armendariz founded a microfinance bank in Chiapas, Mexico, and Jonathan Morduch has done fieldwork in Bangladesh, China, and Indonesia.

The authors move beyond the usual theoretical focus in the microfinance literature and draw on new developments in theories of contracts and incentives. They challenge conventional assumptions about how poor households save and build assets and how institutions can overcome market failures. The book provides an overview of microfinance by addressing a range of issues, including lessons from informal markets, savings and insurance, the role of women, the place of subsidies, impact measurement, and management incentives. It integrates theory with empirical data, citing studies from Asia, Africa, and Latin America and introducing ideas about asymmetric information, principal-agent theory, and household decision making in the context of microfinance.

The Economics of Microfinance can be used by students in economics, public policy, and development studies. Mathematical notation is used to clarify some arguments, but the main points can be grasped without the math. Each chapter ends with analytically challenging exercises for advanced economics students.


Out of Print ISBN: 9780262012164 360 pp. | 6 in x 9 in 15 illus.


Out of Print ISBN: 9780262512015 360 pp. | 6 in x 9 in 15 illus.


  • A great place to learn how and why microfinance really works, and where it hits its limits. The book, written by two leading young economists, brims with new evidence and provides fresh perspectives on old debates. Clearly written and sharply argued, it revisits and transforms important ideas about poverty reduction, finance, and incentives. The authors describe what we know and what we need to know in order to move forward.

    Joseph E. Stiglitz

    Professor of Economics and Finance, Columbia University, Nobel Laureate in Economics

  • The microfinance movement is bringing hope, prosperity, and progress to many of the poorest people in the world. It is necessary to use critical economic reasoning to understand why the movement is such a success and how its exact achievements can be assessed and scrutinized. This book is a splendid contribution to that goal, and will be a great help to students, teachers, and practitioners in economics and the social sciences.

    Amartya Sen

    Lamont University Professor, Harvard University, Nobel Laureate in Economics

  • This is an important book by two of the leading economists in microfinance, detailing what we know and don't know about the subject. It is an accessible book laden with examples, but it doesn't sacrifice intellectual rigor. It should be of great interest to students, researchers, and practitioners with an analytical bent.

    Raghuram G. Rajan

    International Monetary Fund

  • The promotion of microfinance is one of the most significant innovations in development policy of the past twenty-five years. This timely book provides a guide to its main ideas and reviews the evidence in a way that is both accessible and rigorous. It will be a valuable resource for students, researchers and practitioners.

    Timothy Besley

    Professor of Economics and Political Science, London School of Economics and Political Science

  • Microfinance is playing a key role in the economies of many developing countries, providing small-scale entrepreneurs with theaccess to financing that is so often unavailable from commercial and state banks. This book provides an accessible, analytical roadmap for understanding this important trend. The authors tackle central debates and provide new evidence, giving readers tools to create future innovations.

    George Soros

    Founder and Chairman, Open Society Institute