Foreign Aid and Microfinance: A new policy proposal for financing development
- Resource Type
- article
- Authors
- Lacalle-Calderón, Maricruz; Alfonso-Gil, Javier; Rico-Garrido, Silvia
- Source
- Revista Iberoamericana de Estudios de Desarrollo, Vol 4, Iss 2, Pp 106-129 (2015)
- Subject
- microfinance
foreign aid
financial development policy
Social Sciences
- Language
- English
Spanish; Castilian
- ISSN
- 2254-2035
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.