Joseph E. Stiglitz and Antara Haldar
This paper uses India’s microfinance crisis as a context for evaluating alternative theories of microfinance. By contrasting Bangladesh’s highly successful Grameen model with the allegedly “universalizable” version of India’s SKS Microfinance (that precipitated the crisis), we isolate trust or social capital – not just narrowly interpreted within standard economic theory, but more broadly construed – as the essential element accounting for the early success of microfinance. We show that the microfinance experience has been widely misinterpreted, both in analytical and policy terms. Our analysis suggests inherent limits in extending the model to for-profit institutions and to the pace of scaling-up.