The aim of this thesis is to examine what implications microfinance may have for economic growth by exploring the linkages of microfinance, the financial system and economic growth. Due to the lack of previous studies explicitly linking microfinance to economic growth, the weight of the thesis falls on developing a theoretical framework where the different channels to economic growth can be discerned. We use a set of hypotheses to study what channels microfinance may have to economic growth. The first hypothesis concerns the macro-level and examines the link between the financial system and economic growth. The second hypothesis turns to the micro-level and examines the role of microfinance and financial market imperfections in less developed countries. The third hypothesis connects the macro- and the micro-level and draws links between microfinance and economic growth. In the theoretical part, we find that there are threshold effects present on both the macro-level and the micro-level. On the micro-level, there is limited impact of microfinance on productive assets and income-generation. There seem to be income plateaus and restrictions in terms of structural factors and individual abilities limiting income-generation. Also, at very low levels of incomes, vulnerability affects the use of credit for productive purposes. Turning to an empirical case, we look at the effects of microfinance in Bolivia. The microfinance institutions in Bolivia have had a remarkable development and managed to successfully adapt their lending technologies and commercialise. Investigating the direct effects, we find some evidence of the microfinance clients engaging in growth-enhancing economic activities. However, growth dynamics seem to be dependent on the changes in the wider economy. Human capital constraints seem to be present, both in terms of formal education and in terms of business training. There has been little change in income and productivity in micro-enterprises and the economic sectors relevant to microfin...
