• Commercialisation of microfinance

Commercialisation of microfinance

This paper analyses current market conditions to identify the key factors that will determine the future features of the microfinance market. It outlines basic concepts of microfinance, and also looks at the key issues in the market as it is today.

The authors argue that microfinance has evolved very fast in the past few years, from a niche market dominated by social-welfare-oriented actors to an attractive growth market. Along with its mutation, new issues have appeared that are currently being addressed by the market players – historical actors and new entrants alike. Growth management, financing and competition-related topics are the key factors of the general trend characterising the market, namely the commercialisation of microfinance. This tendency raises a topical issue for the years to come, with regard to the possible distortion of microfinance’s historical mission of social improvement. That is, whether it is possible to gain an equilibrium between social and financial objectives in a commercialised environment- a microfinance schism.

key concluding points include:

• the core reason for an alleged microfinance schism would be because MFIs, which increasingly have to be profitable to sustain and finance their growth, prefer to target near-poor clients because they are more creditworthy
• critics appear to find an important echo in public opinion as many are suspicious that a profitable enterprise should at the same time be a development tool
• as yet, there is no hard evidence that MFIs with a social orientation are less successful than the others.
  
• Many MFIs claim to pursue a double bottom line, based on both social and financial objectives
• given the speed at which the market is transforming itself, there is no way to precisely assess whether or to what extent the social-oriented values of microfinance have been lost.

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