The Right Paradigm for Puno: A Microfinance Case Study

Among the many program models employed to spur economic development, microfinance has risen to the forefront because of its promise of a "win-win" situation for donors and clients. Microfinance institutions provide financial services such as small business loans to poor borrowers who would otherwise lack credit access. Because these institutions boast repayments rates as good as or better than traditional institutions, the promise of sustainability or even profitability exists. And yet, while this promise attracts attention to microfinance institutions and their development goals, it may place too much pressure on some programs. Two broad paradigms apply to the goals of microfinance: the institutionist and the welfarist. Using the example of a small microfinance program in Peru, this paper explores some of the issues surrounding the use of each paradigm in evaluating individual microfinance programs.