MFC Policy Paper No.5: Demystifying the role of microfinance in job creation

The paper discusses the role of microfinance in job creation through self-employment and microenterprise. Despite high expectations, in general microenterprises have a limited however socially important contribution to job creation. It is necessary to distinguish between growth-oriented young firms that have a potential to create jobs and self-employment and microenterprises which remain small. If microfinance focuses on the latter group, its impact on job creation will remain small. It may be more economical to reposition microfinance to become a more flexible micro-venture instrument that will fund job creators while leaving support for self-employment and microenterprises to other social programs, including seed capital grant funds.