From Informal Microfinance to Linkage Banking: Putting Theory into Practice, and Practice into Theory

This article is the author's personal account of taking turns living in both worlds - microfinance theory and practice - and bridging the gap between them.The author:

• Describes how his journey took him through paradigm shifts and terminology changes, through history and regions;
• Illustrates the complexity of interventions and timing, and the importance of the interaction between theory and practice.

The author describes:

• His discovery of informal savings practices, their evolution to provide credit and their eventual commercialization;
• The simultaneous evolution in terminology;
• Theories of development and the domination of the modernization theory;
• Different social systems and their varied degrees of receptivity to change.

He suggests that the divide between theory and practice can be bridged by linking formal and informal finance, and describes:

• The unsuccessful attempt to upgrade informal finance;
• The development of linkage banking and its success in various places, including Indonesia, Thailand, Philippines and India.

The author concludes that:

• It takes long-term commitment to put the results of research into practice as well as the ability to take turns as a researcher and practitioner;
• It also takes champions in development organizations willing to take the risk of putting an academic concept into practice.