Research & Analysis

The Role of Governments in Microfinance

Historically, governments have used credit schemes as a way to transfer resources to specific target populations. The negative impact of most of these schemes has led to many donors and experts to advocate for national governments to disengage from microfinance. This approach has not always produced the desires effect: some government programs still undermine microfinance markets. However, there is increasing clarity that governments do have a constructive role in building financial systems that work for the poor. Experienced donors can support government to focus on developing sound policy frameworks and encouraging vibrant and competitive microfinance, rather than directly providing financial services.