Microfinance is a psychological enigma. It is not in anyone's economic best interest to lend money to strangers without getting anything in return. Without interest or guarantee, what is the motivation to take on such financial risk? It seems more akin to charity than to banking. Is it? The fact is that we don't know the neuropsychological underpinnings of such selfless lending.
Decades ago, private capital flowing into developing countries was a small fraction of aid dollars. Since then, that private capital investment has grown roughly 100-fold and the ratio of aid to investment has flipped. Today, every $1 in aid to developing nations is dwarfed by nearly $7 in private investment.