Mission Of Microfinance Institutions Versus Microfinance Goes Public Finance Essay

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The difference between many of commercial banks and microfinance institutions (MFIs) is the commitment to a double-bottom line, financial and social, of the latter. The microfinance itself is considered as a poverty alleviation tool and as the sector with potential to become self-sustainable. There have been a number of debates about the future of the microfinance industry.

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Since 1990s, some debates regarding the possibility of achieving the social mission of the MFIs, mission to serve the poor and thus to alleviate the poverty, emerged as many microfinance institutions have been moving towards commercialization. Others argue that for-profit oriented microfinance institutions may move to targeting customers who are better off than their initial target. This phenomenon is known as "mission drift".

Recently, with the increased interest of microfinance sector from international investors, commercial, private and socially responsible, and up-scaling of the MFIs, there have been a number of discussions about the mission drift and concern that the microfinance is losing its social mission, commitment to poverty alleviation. Despite this interest, only few studies have been conducted to examine this issue. This paper will attempt to discuss whether or not MFIs moving up-market face difficulties in reaching their double bottom line. The first part of the paper will provide an overview of the literature on the topic of mission drift and try to answer the questions whether the "mission drift" is a relevant concern for the MFIs. The second part will discuss on whether MFIs that go public drift mission, to which extent growth and development of the industry really help poor people and what could be done in order to control and ‘protect’ social bottom line. The last part will conclude.

Mission Drift as a relevant concern for the commercialized and transformed MFIs

In the existing literature there is definitely more than one definition of mission drift, but all of them stating generally about the same issues: mission drift is the notion when MFIs drift away from their original mission, to serve poor clients and alleviate poverty, to more profit generating vision by serving wealthier clients or by charging high interest rates for their clients. Most of the recent papers agree on the definition of mission drift given by Cull et al. (2007) "…microbanks moved away from servicing their poorer clients in pursuit of commercial viability". Some researchers indicate mission drift with commercialization and transformation (Christen, 2001). It is thought that the commercialization approach may lead to more profit oriented motives and will decrease social impact, which in turn may follow by targeting less risky clients, thus drifting its focus away from the poor population.

According to Dichter and Harper (2007), the microfinance institutions are losing their sight of mission to serve the poor while growing and getting mature.

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