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date: 25 January 2021

Abstract and Keywords

The microfinance industry has every sign of an innovation in its take-off phase. The characteristic aspects of the microfinance innovation were developed in the 1970s and 1980s; thirty years later the industry experienced a phenomenal growth rate, and it has diffused to most developing countries in the world. This article looks at microfinance as an entrepreneurial activity in its own right, contributing to the development of small and medium-size firms in developing countries. It traces the innovations in microfinance, for instance, group lending, loans to women, and their financing, and it asks whether the business model implied is sustainable once diffusion has gone far, competition enters, and customers enter higher income levels.

Keywords: microfinance innovation, developing countries, small firms, medium-size firms, group lending, business models, high income

Roy Mersland

Roy Mersland, Professor in the Department of Economics and Business Administration at University of Agder, Kristiansand, Norway.

R. Øystein Strøm

R. Øystein Strøm is professor of finance at Oslo and Akershus University College in Oslo, Norway, where he teaches corporate finance and corporate governance. His main research interests are in corporate governance (board structure, network linkages, and CEO compensation issues) and microfinance. His microfinance interests span from the governance of microfinance institutions to lending practices and efficiency. He has published in journals such as Journal of Banking & Finance and World Development.

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