Understanding the Diversity and Complexity of Demand for Microfinance Services: Lessons from Informal Finance

Abstract

There is growing consensus that microfinance supply is too standardised, inflexible and inadequate given the diversity of financial needs. As a result, microfinance is a very partial substitute for informal financial services and their comparative advantages.This paper aims to deepen understanding of financial service demand by learning from informal finance. Based on economic anthropology, our analysis shows that microfinance does not substitute informal finance for many reasons: because money and informal finance are multidimensional and context specific; because the boundary between saving and borrowing is blurred; because money circulates in small quantities and quickly in village economies; because informal finance is more flexible; and, last but not least, because informal finance is a vector of social inclusion. * Rural Microfinance and Employment: Do processes matter? http://www.rume-ruralmicrofinance.org/ 101The Handbook of Microfinance Downloaded from www.worldscientific.com by UNIVERSITY OF SOUTH AUSTRALIA on 09/11/16. For personal use only.

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