Published online by Cambridge University Press: 02 December 2010
This chapter concerns the place of poor developing countries in the financial architecture and ‘microlending’ as a potential means for alleviating poverty. It critically examines the exponential rise of microfinance institutions (MFIs) and asks why they have become so central within strategies to combat poverty around the globe. Poverty alleviation has so far played a subordinate role in the design and functioning of the global financial system, at least in part because developing countries' concerns have been largely absent from the input side of global financial governance. Microlending is thus first and foremost a response to the exclusion of the poor from global and national financial systems. In important ways, the growth of microfinance is also a reaction to the dilemmas of financial openness and debt traps (Cassimon et al., Chapter 4 in this volume) and the tendency of capital to flow ‘uphill’ from poor to developed economies (Prasad et al. 2006). Thus the crisis-prone process of global financial integration over the last thirty years is arguably the key to understanding this paradigmatic shift in international aid delivery. Global financial crises have increased economic instability for many among the poorest of the poor, who often bear the brunt in developing (and increasingly also developed) countries.