Foreign Aid and Microfinance: A new policy proposal for financing development
DOI:
https://doi.org/10.26754/ojs_ried/ijds.145Keywords:
Microfinance, Foreign aid, Financial development policyAbstract
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.
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Copyright (c) 2015 Maricruz Lacalle-Calderón, Javier Alfonso-Gil, Silvia Rico-Garrido
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