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1. Introduction
Muhammad Yunus, a former economics professor at Chittagong University in Bangladesh and a subsequent winner of the Nobel Prize for peace in 2006, first began making small loans to local villagers in the 1970s. Since then, his actions have led to the creation of the remarkably successful Grameen Bank and to what some have called the "microfinance revolution." [1] This revolution has not only had a significant impact on the developing countries of the world but it has also affected parts of the developed world. Specifically, Muhammad Yunus's Grameen Bank has now been duplicated in five continents. As noted by [3] Armendariz de Aghion and Morduch (2005), Grameen Bank inspired approaches begun in Latin America have now found their way to the streets of El Paso and New York City and policy makers in China and India are now developing their own homegrown microfinance institutions (MFIs). Indeed, given the salience of the "microfinance revolution," the United Nations designated 2005 as the International Year of Microcredit.
Today, generally speaking, there are two views of microfinance. The first view - see [16] Robinson (2001) - considers the ideas surrounding microfinance to be nothing short of revolutionary and paradigm shifting given contemporary banking practices. The second view - see [14] Morduch (1998) - says that the benefits of microfinance have yet to be fully developed and tested over time. This dichotomy notwithstanding, most researchers now agree that "microfinance has ... shaken up the world of international development" ([3] Armendariz de Aghion and Morduch, 2005, p. 1).
Given the contemporary salience and the future promise of microfinance as, inter alia , a poverty alleviating tool, researchers have studied various aspects of microfinance from a theoretical and from an empirical perspective. Focusing on LaPaz, Bolivia, [15] Navajas et al. (2003) have analyzed the ways in which changes in competition between lenders have affected the terms of loan contracts and the diligence with which borrowers repay their loans. [4] Daru et al. (2005) describe the outcome of an International Labor Organization (ILO)-sponsored study designed to alleviate the plight of poor borrowers in South Asia who often have great difficulty in repaying their loans because they are "bonded to their employers." [13] McIntosh and Wydick (2005) have argued that...