Research & Analysis

Is Microfinance an Effective Strategy to Reach the MDGs?

The United Nations’ Millennium Development Goals (MDGs) have galvanized the development community with an urgent challenge to improve the welfare of the world’s neediest people. Donor agencies are orienting their programming around the attainment of the MDGs and are mobilizing new resources to reduce hunger and poverty, eliminate HIV/AIDS and infectious diseases, empower women and improve their health, educate all children, and lower child mortality.

The MDGs are framed as concrete outcomes in the areas of nutrition, education, health, gender equity, and environment. Thus work in these specific areas will be a large part of any development strategy driven by the MDGs. But decades of experience has shown that progress in these areas is powerfully affected by other factors in the broader context, such as a functioning government, physical security, economic growth, and basic infrastructure (for example, transportation). This paper reviews the mounting body of evidence showing that the availability of financial services for poor households (“microfinance”) is a critical contextual factor with strong impact on the achievement of the MDGs.