Foreign Aid and Microfinance: A new policy proposal for financing development

Maricruz Lacalle-Calderón, Javier Alfonso-Gil, Silvia Rico-Garrido


In this paper, we review and compare the potential and limitations of foreign aid and microfinance as a top-down and bottom-up approaches to financing the development process in poor countries. We not only sustain that reviewing foreign aid is a must for the future of the least-developed countries but also posit that microfinance is a complementary and financially sustainable approach that creates better incentives for development. After calculating the potential effects of microfinance over employment and GDP through a simple empirical exercise, we propose a policy recommendation of redirecting a very small share of official development aid (ODA) resources to microfinance in order to provide options for the most underprivileged populations.

Lacalle-Calderón, M., Alfonso-Gil, J., Rico-Garrido, S. (2015). Foreign Aid and Microfinance: A new policy proposal for financing development. Iberoamerican Journal of Development Studies, 4 (2): 106-129


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