Beyond Lending: How Microfinance Creates New Forms of Capital to Fight Poverty

loans to the poor, mostly women, replaces physical collateral with collective responsibility. Today, microfinance is an established way to provide financial services to the poor. It can be scaled up in widely different environments around the world, and can deeply benefit the people it serves. It allows the poor both to take advantage of opportunities and to manage their vulnerabilities. The focus of the innovations in microfinance has itself evolved. In the early days of microfinance, the focus was much more “social:” how to form groups in ways that would most effectively enforce collective responsibility? How to motivate women to form their own groups? How to motivate people to save for a period before lending them money? How to respond to negative responses from the better-off and the religious groups in a community? Then, as the focus shifted from social questions, microfinance began to become more professionalized and was scaled up. Soon, innovations related to basic loan management followed. Along with the focus on financial sustainability, innovations in microfinance included better management information systems, and management systems that could increase productivity and internal control. During the middle 1990s, the pendulum began to swing back to the client end, as criticisms of one-size-fits-all types of microcredit gained ground. The initial focus on product innovations in the credit domain was soon followed by a call to expand innovations to a whole range of financial services beyond credit, including savings, insurance, and money transfers. In this article, we focus on a different source of innovations in microfinance: using the process capital of microfinance to design innovations that can address a far wider range of constraints facing the poor. We will also discuss the strategic linkages between microfinance and other approaches that innovators must consciously design into the package if microfinance is to be truly inclusive. To illustrate our argument we provide some examples from Building Resources Across Communities (BRAC) in Bangladesh. Fazle Hasan Abed and Imran Matin