While microfinance has become very popular in the development literature as a new way to combat poverty in the developing world, many scholars, popular press and public officials have called into question the success of the microfinance model. What I find to be a very interesting question here is, "why did this go wrong?" It seems to me that there are the potential for several issues. As the first link below points out, sometimes micro lenders lack the proper checks and balances and wind up making a regular loan without checking to see how the funds are being used.

http://www.dailymotion.com/video/xiqwu2_why-microfinance-story-has-gone-...

The other interesting question I think we need to ask here is in regard to the role of larger government and NGO organizations in micro finance. Once these small loans go from being offered by a local or semi-local firm to a much larger organization, can we really call it microfinance? Are there other reasons for the breakdown of this model?

Here are some additional thoughts on this issue:

http://www.bidnetwork.org/en/news/why-microfinance-doesnt-work

http://opinionator.blogs.nytimes.com/2011/01/31/when-microcredit-wont-do/

http://www.boston.com/bostonglobe/ideas/articles/2009/09/20/small_change...