Abstract:
Contrary to the confidence in the ability of microfinance to uplift the poor on the social structure
so that upon reaching a higher echelon, the poor (clients) will be able to save and borrow from
formal financial institutions (FFIs), most of the poor and socially vulnerable have now become
addicted to micro-credit due to demand and supply-side factors. What could be the possible
causes of this micro-credit addiction? The objective of this paper was to unravel the causes of
what we call “microcredit addiction” and provide recommendations that will enable the
addicted clients to break away from this craving. The paper reviews literature on social and
financial impact of microfinance and finds that failure of microfinance in the delivery of its core
mandate of poverty reduction results in clients’ addiction to micro-credit and, eventually,
inhibits their social and financial mobility. The upscaling intentions of MFIs, compulsory
savings, high interest rates and transactions costs, multiple borrowing, client’s inability to save
for the future and, surprisingly, clients’ satisfaction with MFIs’ products and services are among
the factors that make clients get addicted to micro-credit.
