Poor entrepreneurs benefit less from poverty alleviation initiatives than less-poor entrepreneurs and access to formal microfinance reduces the incidence but not the amount of borrowing (Islam, Nguyen, & Smyth, 2015) from various types of informal sources (Arp & Ardisa, 2016b). Over time, less poor entrepreneurs reduce their reliance on informal borrowing while access to formal microfinance increases borrowing for consumption of the poorest without facilitating access to new business opportunities (Islam et al., 2015). To help explain these phenomena, the empirical part of this study examines an overlooked variable: Informal intermediation. That is, less-poor entrepreneurs borrow from formal lenders and lend to poorer ones. This forms a significant part of monopolistic competition (Chamberlin, 1947) rather than efficient market scenarios (Arp & Ardisa, 2016a). We find that access to formal microfinance creates new business opportunities for less-poor borrowers without new productive venture creation among the poorest of the poor. We conceptualise informal intermediation as a variable for future quantitative examinations of the effectiveness of formal microfinance, theorise direct and indirect effects, and develop propositions for further research. Our study advances theory on microfinance for poverty alleviation through entrepreneurship.