Lessons for global microfinance from . . . the United States?

Questions about the future of global microfinance, and specifically the future of policy and subsidy for microfinance, abounded even before the pandemic. Competing policy priorities and limited budgets mean key questions must be answered. How should funders and policy-makers approach subsidy to sustain or increase the reach of microfinance? How do policy-makers find a balance between consumer protection and minimizing the costs of regulation for providers who attempt to serve low-income (and often unprofitable) customers? Can technology be a solution to long-standing challenges, increasing reach and lowering costs? Insight into these questions can be gained from an unlikely place: the United States. For decades, global microfinance advocates have suggested the US has much to learn from the innovations and successes of the global microfinance movement. However, the financial system in the US is best understood not as the result of an absence of microfinance, but an example of how a financial system evolves, and the enduring challenges, even when it includes microfinance. Microfinance has been historically present in the United States, since at least Benjamin Franklin, and extending through the present. A clear-eyed and informed view of that history provides several important lessons, including the necessity for on-going subsidy, the never-ending challenge of consumer protection, the rising costs that can come with robust market competition, and the inability of technology to fix systemic challenges. Policy-makers and funders the world over can benefit from learning from each other, particularly if the conversations start from a different point: the challenges are shared and fruitful ideas and valuable lessons can come from all parties.