Microfinance within the theoretical framework of Sustainable Development – A blessing and a curse

According to the agenda of the Sustainable Development Goals developed by the United Nations, poverty is one of the most significant issues worldwide. Microfinance has emerged in a phenomenal hype as a panacea for alleviating poverty and empowering the disempowered. Poor people without access to financial services were offered microcredits in order to lift them out of poverty. This approach has been used for over 30 years now and this extended essay raises the question whether the practices and principles of microfinance as used today have strayed away from the original approach, thus from the framework of Sustainable Development. Consequently, the following question arises: Can an inclusive framework of Sustainable Development provide a sound justification for the practices and principles of microfinance as applied today? With growing commercialization of microfinance and hence, incorporation into the conventional financial sector, a third research question must be asked, namely whether the financial sector itself is inclusive and aligns with the framework of Sustainable Development as outlined. Within this essay, it is revealed that microfinance is on a path of divergence from its initial goals and objectives and thereby focuses more and more on economic benefits, which goes against the concept of Sustainable Development considering the interlinkage of economic, social and environmental aspects. In the same way, the financial system, which microfinance seems to align ever more closely with, features some controversies which essentially detach the financial sector from a Sustainable Development framework. This study comes to the conclusion that microfinance has emerged as an alternative approach, but has been changed by and incorporated into the neoliberal system in the same way as the financial system. Essentially, more research is needed on the effectiveness of microfinance in order to make use of it as one of many interventions to meet the global challenges of Sustainable Development.