Welfare Implication of Foreign Aid and Domestically Funded Microfinance Programs

Microfinance as well as women’s economic participation has welfare implications in developing countries. A two-sector model has been developed to analyze these implications. The findings suggest that the welfare cost of microfinance depends on the country’s overall level of development and society’s attitude towards women’s economic participation. The difference in the welfare cost of government funded microfinance and donor funded microfinance programs can be minimized by increasing the administrative efficiency of public spending on microfinance.