ABSTRACT
The idea of attempting to reduce poverty in developing countries through the provision of loans by specialized financial institutions to microenterprises, urban and rural, has in recent years generated enthusiasm bordering on hysteria. Politically, it appeals to the left as being redistributive and a direct approach to alleviating poverty, and to the right as facilitating the emergence of an independent, self-sustaining ‘penny capitalism. Financial performance is measured by means of two alternative indicators: the proportion of loans more than six months in arrears and the Subsidy Dependence Index, which measures the extent to which interest rates would have to be raised to break even in an environment free of all subsidy. Change in income of borrower household as percentage of change in income of a control group of non-borrowers living in same area and having similar income, assets, and access to infrastructure as the sampled borrower group.
