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Microfinance: economics and ethics

Clement Tisdell (School of Economics, University of Queensland, St Lucia, Australia)
Shabbir Ahmad (UQ Business School, University of Queensland, St Lucia, Australia)

International Journal of Ethics and Systems

ISSN: 2514-9369

Article publication date: 3 August 2018

Issue publication date: 17 August 2018

2049

Abstract

Purpose

The aim of this study is to examine arguments about the economic and ethical worth of microfinance.

Design/methodology/approach

This study draws on the available literature to provide a balanced discussion of different views about the economic and ethical desirability of microfinancing. The discussion is reinforced by the use of secondary data (statistics) on the attributes of microfinancing and by reference to a case study in rural Pakistan.

Findings

Microfinancing is less virtuous than commonly portrayed. Its economic inefficiency consequences are identified, and it is found only likely to make a small contribution to economic growth. The economic efficiency criterion for moral worth (promoted by Becker and Posner) is found to be wanting. From an ethical point of view, microfinance needs to be supplemented by charity to assist the poor. The supply of Islamic microfinance has grown rapidly, but it remains absolutely quite small. It still has some way to go to overcome the ethical and economic shortcomings associated with the supply of microfinance. Supplying microfinance to vulnerable female borrowers can put them under considerable psychological stress. Possible beneficial effects of microfinance are also identified.

Originality/value

This study is unique because it systematically draws on recent literature and data to provide a novel and balanced review of the economic and ethical worth of microfinance.

Keywords

Acknowledgements

This article was partially supported by a grant from the Australian Centre for International Agricultural Research Project “Creating Wealth in Smallholders’ Farms through Efficient Credit Systems” (APD/2016/028).

Citation

Tisdell, C. and Ahmad, S. (2018), "Microfinance: economics and ethics", International Journal of Ethics and Systems, Vol. 34 No. 3, pp. 372-392. https://doi.org/10.1108/IJOES-02-2018-0028

Publisher

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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