The microfinance textbook doesn’t have much to say about state regulatory capacity. The idea that small loans to very poor people is effective in pulling them out of poverty is so simple and appealing that proponents have believed it to be universally applicable.
Economic agents, the theory insists, simply pursue their self-interest according to demonstrable straight lines. If poor people can’t escape poverty, the textbook looks for a blocking variable.
Lack of access to credit in unbanked populations naturally suggests itself as such a simple variable. The entrepreneurial spirit, some economists are tempted to think, exists in all of us if only it could be unleashed. Microfinance is even more beguiling as it gives Western development finance institutions (DFIs) something to do. Partnerships with local microfinance lenders can be developed. Poor countries can be studied, visited, and promising case studies compiled, or paid for.
