ABSTRACT
By the year 2010 two major limitations of microfinance had come to be highlighted in the literature with respect to its role in micro enterprise development — small loan sizes and lack of attention to non-financial support. As for the first weakness, it is argued that the credit offered by microfinance institutions is often too small to be invested in a productive activity or in expanding a micro business. Birdar and Jayasheela (2000) contend that it is common for loans meant for productive purposes to be spent on household consumption. Banerjee et al. (2009) find through a randomised trial that micro credit has little impact on the investment practices and business income of those micro entrepreneurs, who did not already possess a functioning business at the time of loan disbursement. The shift from group to individual lending and bilateral contracts has helped in increasing the loan sizes (Morduch and Armendáriz 2004), but with negative consequences for the poverty focus of the microfinance organisations.
