Microfinance and the Decline of Poverty: Evidence from the Nineteenth-Century Netherlands

Building on recent work by Collins et al. this paper aims to explain the failure of corporate and public initiatives to alleviate poverty before the twentieth century by unravelling the financial rationale behind the various combinations of private efforts, family and neighbourhood help, financial intermediation, and government intervention tried by poor households in the eighteenth and nineteenth century. There existed several financial institutions whose functioning was very similar to modern microfinance institutions, yet none of them were in a position to help the poor. We find that in the Netherlands the boundary of formal financial markets moved down not because of financial innovation, but because of economic growth pushing up wages. Until the last quarter of the 19th-century poor households simply lacked the money to use newly established mutual insurances, savings- and loan banks.