The role of microfinance has attracted significant interest in recent years, both from policymakers as well as in academic circles. However, as has been pointed out in a recent special issue on microfinance in The Economic Journal (Hermes & Lensink, 2007), many questions regarding microfinance remain unanswered. In particular, the following two pressing issues should receive more attention: (1) does microfinance have an impact on the social and economic situation of the poor in developing nations? This question is very relevant since a lot of effort and resources have been put into developing microfinance, especially since the beginning of the new millennium, as an instrument to combat poverty. (2) Are microfinance institutions sustainable in the long term; is there a trade-off between sustainability and outreach? Again, this is a very relevant question, since emphasizing poverty reduction comes at a price, which may reduce the scope for financial sustainability and vice versa.
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