Microfinance in Latin America: Poverty Alleviation and the Impact of Institutional Mimicry

Abstract

Microfinance has become a program of choice in the international development community. The World Bank has promoted microfinance programs under the idea that poverty alleviation can be accomplished by mainly providing credit. 1 As such, these policies are often replicated throughout the developing world. This replication is done through international organizations adopting a standard of best practices for the microfinance field. Best practices consist of a complex set of standard by which all banks must adhere if they receive funding from the World Bank or International Monetary Fund. These best practices, following neoliberal economics, lay out how microfinance should operate according to the World Bank. This dissertation looks specifically at this replication through institutional mimicry by questioning the actual impact of the neoliberal economic policies enshrined in the best practices model of microfinance. It examines several distortions that neoliberal best practices create on two dimensions: economic and socio-cultural. The economic distortions concern issues of debt cycles, self-sufficiency, and the role of the economically active poor with the argument that clients who participate in Microfinance Institutions (MFIs) face increasing levels of poverty. Furthermore, it is argued that socio-cultural distortions like social capital creation, local conditions, and gender targeting increase poverty as well. Using a comparative case study analysis of MFIs in Latin America, this dissertation demonstrates economic and socio-cultural effects for MFIs departing from best practices: first, the lower level of indebtedness of their clients and, second, the offering of a wider array of social programs in the community. These findings are a preliminary indication that departing from best practices contributes to poverty alleviation. Essentially, I argue that for microfinance to be successful it needs to question neoliberal best practices within microfinance policies and focus on tailoring microfinance programs to local political and social conditions.