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The Economics of Microfinance [Paperback]

Beatriz Armendáriz , Jonathan Morduch
4.8 out of 5 stars  See all reviews (10 customer reviews)

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Book Description

April 23, 2010 0262513986 978-0262513982 second edition

The microfinance revolution has allowed more than 150 million poor people around the world to receive small loans without collateral, build up assets, and buy insurance. The idea that providing access to reliable and affordable financial services can have powerful economic and social effects has captured the imagination of policymakers, activists, bankers, and researchers around the world; the 2006 Nobel Peace Prize went to microfinance pioneer Muhammed Yunis and Grameen Bank of Bangladesh. This book offers an accessible and engaging analysis of the global expansion of financial markets in poor communities. It introduces readers to the key ideas driving microfinance, integrating theory with empirical data and addressing a range of issues, including savings and insurance, the role of women, impact measurement, and management incentives. This second edition has been updated throughout to reflect the latest data. A new chapter on commercialization describes the rapid growth in investment in microfinance institutions and the tensions inherent in the efforts to meet both social and financial objectives. The chapters on credit contracts, savings and insurance, and gender have been expanded substantially; a new section in the chapter on impact measurement describes the growing importance of randomized controlled trials; and the chapter on managing microfinance offers a new perspective on governance issues in transforming institutions. Appendixes and problem sets cover technical material.

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The Economics of Microfinance + Portfolios of the Poor: How the World's Poor Live on $2 a Day + Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty
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Editorial Reviews


"An extraordinary book, inasmuch as it explains not only the underlying rationale of microfinance but, more broadly, of finance itself." Thomas Easton, Asia Business Editor, The Economist

"Anyone interested in the science behind microfinance must read this impressive book. It is written with experience in microfinance and a deep understanding of economics." Muhammad Yunus, Nobel Peace Prize Laureate (2006)

Praise for the first edition "An excellent analysis of the evolution of microfinance and the economic theory behind it....Though the style is that of a textbook, including exercises and numerical examples, the text is well written and an excellent source for economists who want to learn about this topic." Branko Milanovich Times Higher Education Supplement

"Microfinance is the most visible anti-poverty intervention of the last 25 years. It has been extremely successful in effectively delivering financial services to the poor, reaching more than 150 million clients (mostly women), often in countries where very little else works. This remarkable achievement has led many to believe that microfinance could be what everyone has been looking for: a transformative solution to the problem of poverty itself. And, not surprisingly, it has attracted its share of criticism, some even arguing that microfinance is no better than a new form of usury. It is high time that some serious analysis and solid evidence be brought to bear on this important and passionate debate. This is what Beatrice Armendáriz and Jonathan Morduch do masterfully in this book, drawing on very recent research and their own extensive experience. This should be required reading for microfinance friends and foes alike, or anyone wishing to understand what the issues really are." Esther Duflo, Department of Economics, MIT

About the Author

Beatriz Armendáriz is a Lecturer in Economics in the Department of Economics at Harvard University, a Senior Lecturer on leave from University College London, and coeditor of The Microfinance Handbook.

Jonathan Morduch is Professor of Public Policy and Economics at New York University's Wagner Graduate School of Public Service. He is the coauthor of The Economics of Microfinance (MIT Press) and Portfolios of the Poor: How the World's Poor Live on $2 a Day.

Product Details

  • Paperback: 496 pages
  • Publisher: The MIT Press; second edition edition (April 23, 2010)
  • Language: English
  • ISBN-10: 0262513986
  • ISBN-13: 978-0262513982
  • Product Dimensions: 9.1 x 5.9 x 0.8 inches
  • Shipping Weight: 1.4 pounds (View shipping rates and policies)
  • Average Customer Review: 4.8 out of 5 stars  See all reviews (10 customer reviews)
  • Amazon Best Sellers Rank: #65,649 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews
27 of 28 people found the following review helpful
5.0 out of 5 stars Essential reading for development economists January 4, 2006
Microfinance has become one of the most important mechanisms for the development of informal business in developing economies. As such, it has attracted attention from development practitioners, economists and politicians. Disappointingly, most books on the subject can be best described as infomercials - rarely do they go beyond success stories of happy women in brightly coloured clothes who are now running home enterprises. But practitioners know that there is far more to microfinance than simply providing loans - just as there is far more to development than simply pouring money into a country. There are pitfalls to microfinance: it can crowd out local business, it can catapult poor people further into poverty if incorrectly adminstered, and there are a host of governance issues surrounding it.

This book provides a comprehensive analysis of the economics of microfinance, as the title suggests. It is a technical book: it expects a high level of economic understanding, but it synthesises a vast amount of information on the subject and communicates it succintly. This is without a doubt one of the best technical economics books I have read - and I have read an awful lot of them.

I've given this book to my PhD students working in this area as essential background reading before they commence research. I commend this book to any economist or development practitioner who is interested in the economics behind the stories and photos, who want to find solutions that will really catalyse economic development, who want to see successful projects implemented and who want to learn from the expertise of others to make sure they do the best for their clients.
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10 of 11 people found the following review helpful
5.0 out of 5 stars Microfinance at its finest December 20, 2006
Format:Hardcover|Verified Purchase
Microfinance is one of the newest strategies for development and Princeton economist Morduch takes a look at how it impacts societies. While he only looks briefly at the social issues he makes several compelling economic arguments for why we should consider microfinance as a viable option. The book is very well written although I think it does leave out some of the long term structural and institutional changes that need to be addressed. This is a field where new research comes out every day but Morduch's book is likely to be a staple for a very long time. This is a must have for anyone studying microfinance and will be for a long time to come.
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9 of 10 people found the following review helpful
4.0 out of 5 stars From microloans to microsaving and beyond April 21, 2008
Microfinance is most famous as microlending, whose most famous representative is Bangladesh's Grameen Bank. Grameen, and its founder Mohammad Yunus, won a Nobel Peace Prize in 2006 for their aid to the poor. The idea, with which most people are probably familiar, is that the bank loans some of the world's most destitute people small amounts of money -- $100 or less, typically -- for some vital bit of capital. Borrowers might use the money to buy a sewing machine, for instance, which they can then use to produce far more clothing than they had produced by hand. Grameen's default rate has been remarkably low -- "the poor always pay back", to use the phrase from Grameen II.

The economic logic here is actually revealing as a study of what's unspoken in economic logic, hence how misleading economic postulates are. "All else being equal" (such a magical phrase), the first bit of capital that I get will yield more benefits to me than the second bit. Assuming I'm rational, I will spend the first money I get on more-productive capital, then spend subsequent bits on less productive capital. That is, the marginal returns to capital are decreasing (or at least nonincreasing). Hence, if I'm a rational bank and all else is equal, I should be more willing to lend to the poor than to the wealthy: I'll get a greater return from lending that little bit of capital.

Needless to say, that's not how it works: Citibank is in no rush to lend to Bangladeshi farmers. Why not? Obviously it's because all else is not equal. Among many other things, Citibank relies on the vast infrastructure provided by advanced capitalist economies: before they loan to me, they check with credit-reporting agencies that have a special competence validating people's reputations.
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5 of 5 people found the following review helpful
5.0 out of 5 stars Great book for self-teaching May 8, 2007
Format:Hardcover|Verified Purchase
After reading "Banker to the Poor," I was interested in getting a bit more of an unbiased view of the subject of microfinance. The authors' views are clear and concise about each topic, plus they offer lots of other sources for the information. While it is obviously intended as s textbook, this book is a great way to teach yourself about the theory and empirical studies about microfinance.

I could not have chosen a better book than this one.
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4 of 4 people found the following review helpful
5.0 out of 5 stars An eye opener May 23, 2007
To those that, as i am, have an Economics background and are just grasping the all immense universe that microfinance is becoming, this book opens perspectives and clears some very important issues. Issues such as the value of interest charging or the many different ways there actually are to build a microfinance initiative or the value of professional dedication to make it an effective and efficient working and sustainable intervention ... A must have!
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