Microfinance and the Decline of Poverty: Evidence from the Nineteenth-Century Netherlands

Abstract

Applying insights from recent literature on the financial behaviour of poor households in developing countries to the nineteenth-century Netherlands, we show that micro finance type institutions failed to alleviate the country’s persistent poverty for the same reasons found today. The numerous institutions launched failed to reach the customers targeted because, like the poor households analyzed in the modern literature, the Dutch poor lacked the money to use them and relied on a combination of makeshift and network solutions instead until rising wages from about 1870 widened their options. Consequently growth preceded finance, not the other way around.