Content uploaded by Linda M. Sama
Author content
All content in this area was uploaded by Linda M. Sama on Oct 15, 2017
Content may be subject to copyright.
MICROFINANCE, MISSION DRIFT AND THE IMPACT ON THE BASE OF THE
PYRAMID: A RESOURCE-BASED APPROACH
R. MITCH CASSELMAN
(Corresponding Author)
Department of Management
Peter J. Tobin College of Business
St. John’s University
8000 Utopia Parkway
Queens, NY 11439
Tel: +1 718 990 6341
Fax: +1 718 990-1868
Email: casselmr@stjohns.edu
Dr. Casselman is the Director of the Center for Global Business Stewardship and an Assistant
Professor of Management at St. John’s University.
LINDA M. SAMA
Department of Management
Peter J. Tobin College of Business
St. John’s University
8000 Utopia Parkway
Queens, NY 11439
Tel: +1 718 990 7323
Fax: +1 718 990-1868
Email: samal@stjohns.edu
Dr. Sama is the Executive Director of the Center for Global Business Stewardship at St. John’s
University; Director of GLOBE, a student managed microfinance institution; the Joseph F.
Adams Professor of Management and Associate Dean for Global Initiatives at the Peter J. Tobin
College of Business.
MICROFINANCE, MISSION DRIFT AND THE IMPACT ON THE BASE OF THE
PYRAMID: A RESOURCE-BASED APPROACH
ABSTRACT
This paper draws on resource-based theory and the literature on strategic intent to
develop a theoretical model that explains the concept of mission drift in microfinance institutions
(MFIs). We argue that the differential strategic intents of commercially oriented, for-profit and
socially oriented non-profit organizations drive the acquisition of disparate resources and
capabilities, which in turn drives distinct performance outcomes, including a focus on different
markets within the overall BOP. The paper suggests that it is the dynamic aspects of changing
strategic intent and the consequent timing delays in the development of associated resources and
capabilities that leads to various issues of mission drift. Finally, we suggest that cross-sector
alliances between for-profit and non-profit MFIs may benefit from the unique capabilities of
both types of organizations and deliver the most and broadest impact on poverty alleviation in
BOP markets.
Keywords: Base of pyramid; BOP; Microfinance; Resource-based view; Strategic intent
1.0 INTRODUCTION
Microfinance, defined as the provision of credit and other financial products and services
to the poor, has been lauded as an effective anti-poverty tool for raising income levels,
empowering women, and improving living standards for those occupying the base of the pyramid
(BOP). At the same time, and with the advent of a trend in commercialization of microfinance
from a largely not-for-profit initiative to a for-profit business venture, concerns have been raised
over the degree to which the “new players” in the field are staying true to the social mission of
the earlier pioneers in the industry, and whether any observed “mission drift” is negatively
affecting the ability of microfinance institutions (MFIs) to effectively sustain support to the
poorest of the poor. Further, the trend begs the question of whether or not a microfinance
organization can morph easily or successfully from a non-profit to a for-profit (Fernando, 2004),
and whether the transformation will have positive or negative effects on outreach to the poor
(Hermes, Lensink & Meesters, 2011). This tension between for-profit and non-profit
microfinance institutions mirrors similar discussions about the nature of mutual value creation in
the broader literature on the BOP (Prahalad & Hammond, 2002; Prahalad, 2004; London,
Anupindi & Sheth, 2010); concerns over conflicts within hybrid forms of business (Grassl, 2011)
and issues of mission drift in non-profits (Jones, 2007; Weisbrod, 2004).
While the censure of for-profit MFIs has predominated in the relevant debate, there is
also criticism lodged against the not-for-profit (NFP) and related non-governmental organization
(NGO) sector players. One criticism of NFPs and NGOs delivering microfinance services when
compared to for-profit MFIs is that the former are less effective due to restrictions imposed on
them by donor institutions, particularly bureaucratization requirements such as project appraisal,
reporting, evaluation and accounting (Chahine & Tannir, 2010). More generally, any NFP or
NGO that undertakes social venturing is more likely to face increased scrutiny (Easterly &
Miesing, 2009). There may also be particular ideological, social or political objectives that form
part of the strategic intent of the NGO or NFP and that may work at cross-purposes with
successful provision of needed services to the poor. It is argued that these constraints restrict
NFPs from achieving efficiencies in their loan portfolios (Gutierrez-Nieto, Serrano-Cinca &
Molinero, 2007) as well as hinder their ability to sustainably raise funds and achieve scale
necessary to truly be inclusive of all in need of financial services. Issues of donor fatigue, cost
inefficiencies and lack of management discipline and controls (Hudon, 2008) are all cited as
factors that can impinge on the NFP organization’s inability to sustain a successful micro-
lending business, and thwart attainment of institutional financial self-sufficiency, an increasingly
desirable goal for MFIs. Implicit in this argument is that as a result the NFP/NGO model cannot
achieve the same level of impact on poverty alleviation. For-profit MFIs, oriented as they are on
profit goals, are positioned to scale up their businesses to address the needs of a wider swath of
those living in poverty. They enjoy inherent advantages from established legal and regulatory
protocols that dictate their operations, as well as technical and human resource capabilities
geared toward controlled management operations of lending and savings. However, for-profit
MFIs may not have the expertise or capacity to address or measure the social, educational,
environmental or developmental consequences of their decisions and activities (Hudon, 2008),
and can therefore lose sight of socially and culturally-oriented poverty alleviation objectives. So
while one advantage of commercialization is access to capital markets, one related downside is
that owners or boards of directors would view the primary goal to be one of maximizing
commercial or financial success rather than seeking optimal social success. Ultimately, it can be
argued, institutional financial self-sufficiency and efforts to attain scale do not need to sacrifice
the goal of poverty reduction (Gibbons & Meehan, 1999), although these are often viewed to be
competing and even unrelated goals.
We argue that the different strategic orientations between for-profit and not-for-profit
MFIs actually result in organizations that are not necessarily of different calibers, but rather that
are simply heterogeneous – with distinctly different missions, legal structures, and methods of
operation. While efforts to empirically demonstrate how for-profit, regulated MFIs differ in
scope, in scale and in targeted clients compared to the (commonly) unregulated NFP micro-
lending institutions (Christen, 2001; Tchakoute-Tchiugoua, 2010), there has been limited
theoretical support for the explanations of these phenomena observed in the field. One exception
to this is work by Augustine (2012), who utilizes agency theory and institutional theory to
examine the role of corporate governance structures of MFIs on performance. We take a
different view and propose that differences in strategic intent actually drive the organizations to
develop and utilize their resources in different ways, resulting in the development and bundling
of different sets of capabilities. The outcome of this differential resource content, use and
management is that the products and services delivered will reflect different priorities, that the
customers who benefit from these services will have differing characteristics and that the
operational performance outcomes of the MFIs will differ. In addition, we suggest that the
dynamics of how organizations change their strategic intent and develop new resources can help
to explain the lack of consistency in empirical understanding of mission drift (see Cull,
Demirguc-Kunt & Morduch, 2007; Mersland & Strom, 2010).
In this paper, we will first discuss the strategic intent of for-profit and not-for-profit
MFIs, with a focus on how this translates into a differential resource and knowledge base. We
will explore the varying capabilities of both sectors, and contextualize these arguments within
the current trends that are emerging in the industry. Theoretical support for our arguments will
derive from the literature on strategic intent (Hamel & Prahalad, 2005; Mantere & Sillince,
2007), and the resource-based view of the firm (Barney, 1991; Conner & Prahalad, 1996;
Leonard-Barton, 1992; Grant, 1996). We go on to present a model that helps to explain how
variant MFI forms impact the effective and sustained delivery of financial products and services
to the BOP. We then use the dynamic aspects of the model to help explain the existing
phenomenon of mission drift. We conclude with a general discussion that focuses on policy
recommendations for those engaged in social change for civil society, cross-sector strategic
partnering opportunities for organizations hewing to related objectives, and theoretical import for
future research.
2.0 STRATEGIC INTENT AND DIFFERENTIAL RESOURCE ACCUMULATION
In this section we develop a theoretical model and a series of propositions that explain
how strategic intent and resource accumulation results in a continuum of MFIs that exhibit
different types of performance and have different market impacts on the BOP. We begin with a
discussion of the concept of strategic intent and its role in resource accumulation decisions. We
follow this with a review of the resource-based view (RBV) and how it plays a role in the
development of unique resources and capabilities for MFIs with differing strategic intents.
Finally, we present a model that links strategic intent and resources to different types of
organizational performance outcomes and different impacts on the Base of Pyramid markets.
This model is demonstrated through the specific examples of MFIs that are representative of
categories defined on the strategic intent continuum.
2.1 Strategic Intent
Hamel and Prahalad (2005: 150) define strategic intent as an “obsession with winning at
all levels of the organization” and further describe it as a stable target that captures the essence of
winning and motivates personal effort and commitment within the organization. Further
research in strategic intent has clarified some of its underlying components. Strategic intent acts
as the corporate context for the development of capabilities (Hamel & Prahalad, 2005; Noda &
Bower, 1996). Strategic intent centers on the idea of stretch targets, where an organization sets a
strategic direction that goes beyond its current resources and capabilities (Hamel & Prahalad,
2005) to strive for new and different performance outcomes. The focus is on leverage of existing
resources rather than strategic fit between resources and the environment, which results in a
greater focus on how to make effective investments in developing internal capabilities rather
than targeting specific market niches. Hamel and Prahalad (2005: 153) describe strategic intent
as the creation of an “…extreme misfit between resources and intentions”, while at the same time
ensuring a consistency in resource allocation decisions over the long term.
Strategic intent acts as a coordinating device for decentralized decision-making and the
acquisition and development of a firm’s resources and capabilities. As such, authors have
expanded the concept of strategic intent to consider it as a rhetorical device that enables an
organization to balance tensions and internal conflicts (Mantere & Sillince, 2007). Gadeish and
Gilbert (2001) use the term strategic principle and suggest that a memorable and actionable
phrase that highlights the company’s strategic intent enables coordinated decision-making and
actions in a decentralized organization. Noda and Bower (1996) view strategic intent as the
corporate context through which successive iterations of resource allocation occur. Lovas and
Ghosal (2000) argue that strategic intent acts as a guide or an objective optimizing function for
the evolution of processes which exist in a complex and competitive social system within the
firm. Other authors have acknowledged that organizations face strategic paradoxes where
internal tensions require the strategic management of incongruent objectives (Smith, Binns &
Tushman, 2010). Strategic intent can help to harmonize these internal and external tensions and
allow an organization to develop its resources and capabilities in a focused and rationalized
direction.
Elaydi and Harrison (2010) contrast strategic intent and market extension as two
competing strategic choices when addressing BOP markets. In their view, strategic intent is
motivated by resource and capability development whereas market extension is motivated by
revenue growth. We view these approaches in a different light in that: strategic intent is a
representation of the motivations of an organization or the strategic choice that organizations
make; market extension is one example of how an organization’s strategic intent might be
manifested; and, strategic intent as Elaydi and Harrison (2010) describe would best be
understood as “sustainable market development“ (see Viswanathan & Sridharan, 2009;
Viswanathan & Rosa, 2010; or, Weidner, Rosa & Viswanathan, 2010). What we see as the key
insight offered in Elaydi and Harrison’s comparative case analysis is that motivation (or strategic
intent) drives differential resource accumulation and capability development. In base of pyramid
markets they show that market extension drives profit that is unsustainable or even destructive
because both market participants and regulators lack the capability to use access to advanced
lending practices effectively, whereas “sustainable market development“ drives social
collaboration and direct engagement with the community. For example, “HNB’s Barefoot
Banker microlending initiative, created in 1989, permanently immerses an individual employed
by HNB into the social fabric of a small rural village” (Gallardo, Randhawa & Sacay, 1997 in
Elaydi and Harrison, 2010), making investments in individuals rather than just lending money.
These different strategic intents result in different performance outcomes and market impacts,
one with high growth rates and short term profitability, but with a lack of sustainability and
limited poverty alleviation in the longer term, whereas the other has lower growth rates, but
which builds towards a consistently sustainable business and continued poverty alleviation.
From an organizational perspective, we argue that these different strategic intents not only drive
different performance outcomes and market impacts, but that they focus on the unique and
differential development of internal capabilities. As Elaydi and Harrison (2010) explain, a
sustainable market development included cultivating bankers with deep expertise of local
markets and a variety of product offerings that were built up over time. This leads to our first
proposition:
P1: Strategic intent, understood as the driver of strategic choices an organization
makes, will inform the accumulation of internal capabilities and resources
specific to that intent.
In terms of strategic intent for microfinance institutions, we envision a continuum,
ranging from pure commercial operations which happen to target subsistence marketplaces and
are seeking profit growth as a primary goal, to charitable activities whose intent is solely poverty
alleviation. To further elaborate on this continuum of strategic intent we propose a number of
categories of organizations that represent a range of intents from purely social to purely profit-
oriented. On the social end of the scale, Social Innovators have strategic intents that focus on
poverty alleviation and social value creation. On the commercial end of the scale, Formal
Commercial Micro-Lenders have strategic intents that focus on growth and economic value
creation. In the middle of the continuum, with more balanced approaches are the final two
categories of Socially Oriented Financially Responsible and Profit Oriented Socially
Responsible.
Viewing organizations on this continuum allows us to highlight that Social Innovators
will have fewer organizationally-oriented performance outcomes as an emphasis in their
missions and performance objectives and a greater focus on socially-oriented market impacts.
Similarly, the Formal Commercial Microlenders will have missions that have greater focus on
organizational performance outcomes and less emphasis on social goals in particular BOP
markets. More generally across the MFI continuum, this can be stated in the following
proposition:
P2: Strategic intent will be reflected in the stated mission and performance goals of the
MFI, with social goals and market impacts emphasized for the socially-oriented MFI,
and financial goals and organizational performance outcomes emphasized for the profit-
focused MFI.
2.2 Performance Outcomes and Differential Resource Accumulation
The resource-based view (RBV) of a firm’s competitive advantage has historically
focused on the unique bundling of resources that explains heterogeneity among firms within the
same industry or industry group; and how, to the extent this unique bundling is immobile, it can
produce a sustainable organizational advantage through inimitability (Barney, 1991; Rumelt,
1984; Wernerfelt, 1984). Resources can include physical, human and organizational resources
that exist in the form of assets, capabilities, tacit knowledge, information and organizational
routines (Barney, 1991), or any combination of these.
With this in mind, we argue that the microfinance industry is comprised of institutions
that are heterogeneous in terms of their resources. As such, the competitiveness and effectiveness
of institutional players in the field can differ significantly depending on the nature of the
resource pool; the degree to which the bundling of resources acts to confer a sustainable
competitive advantage; and, as we saw in the previous section, the extent to which strategic
intent drives differential resource accumulation.
We further maintain that the capabilities and knowledge banks consistent with delivering
on the socially-oriented strategic intent of MFIs on one end of the continuum will look different
than those consistent with delivering on profit-focused strategic intent of for-profit MFIs on the
other end of the continuum, even within the purportedly same BOP market. Connor and Prahalad
(1996: 477) advance this thesis in their knowledge-based theory of the firm and propose that
“…the organizational mode through which individuals cooperate affects the knowledge they
apply to business activity”. While Connor and Prahalad’s thesis relates to the question of why
firms exist (in lieu of market contracting that is) the authors’ claims can nonetheless be applied
here as well. In fact, with respect to human resources, the very choices that individuals make in
terms of what type of organization they work for (for-profit versus not-for-profit, for example)
derives directly from their specific set of experiences and skills, and this knowledge base is not
easily transferable from one individual to another, nor from one organizational type to another.
This would pertain to other organizational resources as well, such as physical plant,
organizational routines and processes, and organization-specific assets.
Differences in resource bases and the restricted mobility of resources between
organizations suggest that MFIs will have differing performance outcomes. While some of these
performance outcomes may pertain to differences in competitive advantage given the same
strategic intent, others would reflect the desires of different types of MFIs toward truly different
performance outcomes. That is to say that implicit in the RBV framework is the notion that a
sustained competitive advantage will foster desired performance outcomes. Strategic planning
would perforce seek to identify sources of sustainable competitive advantage and protect them
from environmental shocks that might otherwise “nullify” them (Barney, 1991: 103) and
jeopardize performance. This leads to the following propositional statement:
P3: Differential resources and capabilities in the for-profit and not-for-profit MFI
sectors result in different performance outcomes.
2.3 Market Impacts and Differential Resource Accumulation
Since socially-oriented and commercially-oriented MFIs will develop unique resource
bases through time, they will not only experience different performance outcomes, they will also
leverage these differential resource bases towards different types of market participants even
when approaching similar BOP markets. The result will be different types of market impacts
along the continuum of MFIs including impacts on different market participants, different types
of poverty alleviation, different market externalities and different impacts on the regulatory
regime.
For example, a socially-oriented MFI that is focused on poverty alleviation in BOP
markets might opt for a decentralized approach to those markets that boast locational advantages
and expertise native to the region. That same MFI would install training programs that are
geared to helping employees identify need; measure success on the basis of social outcomes;
seek donors with a social conscience and laud the work that it does in those donor venues; foster
relationships between the organization and the communities it serves; extend its lending sphere
to more remote rural communities in order to reach the poorest of the poor; and, encourage social
collaboration within those communities and between borrower communities and the NGO or
NFP. Social collaboration in this case is aimed at empowering the borrower and developing
social support systems that sustain the borrowing community, while at the same time offering
reciprocal benefits to the MFI in the form of education or training (see, for example, the Village
Network Project as described in Crawford-Mathis, Darr & Farmer, 2010).
An MFI with a commercially-oriented strategic intent might, in contrast, organize
activities in a more centralized way to cut down on costs; seek “better off poor” borrowers in and
around larger urban settings to reduce monitoring expenses and risk; build scale to achieve
economies that would attract serious investors; foster relationships between the organization and
the investment community; and, manage risk and structure product offerings in a way that will
ensure a healthy ROI, often without specific reference to customer need. Compare this to what
happens in a small socially-oriented MFI such as Protagonizar in Argentina where proposals for
loans are “almost always accepted” by the Credit Committee (Becchetti & Conzo, 2011).
The market sectors that are targeted by MFIs represent another differentiating capability
of the two polarized modes of strategic intent. Since commercially-oriented MFIs have resources
honed on risk management, the agricultural sector – a sector that historically has been a
beneficiary of microlending from smaller rural credit agencies in developing economies – has
been less appealing of a target for lending given its many attendant and uncontrollable risks (e.g.,
weather risk and crop failure). As a result, there is a concern that rural credit is less available in
those economies that are in most of need of it, relying as they do on growth in agriculture to
sustain economic development. Further, developing the appropriate practices and adapting
lending policies to this very specific domain that is strongly distinguishable from other, more
lucrative commercial activities, requires expertise and resources not common to larger
commercial banks with microfinance divisions (Chowdhury & Chowdhury, 2011). Given the
importance of agriculture to the developing rural economies in BOP markets, and the difficulty
of competing with large multinationals in their back yards, this may signal a detrimental trend.
The commercially-oriented MFI may also encourage social collaboration, particularly in
BOP markets where bottom up entrepreneurship may be necessary to fill institutional voids and
compensate for a lack of infrastructure (Hill & Mudambi, 2010; Reficco & Marquez, 2009).
However, this social collaboration would be with a different intent, and therefore would be
achieved through different capabilities. Here, social collaboration may result in developmental
opportunities in subsistence markets and mutual learning, but would be driven by a transactional
focus aimed at decreasing default rates and attendant risks. These intentions can translate into
failed programs that are less successful at bringing about trust between borrower and lender, and
self-reliance of the borrower. Abdelnour and Branzei (2010) explain how developmental efforts
in subsistence markets, when local grassroots concerns are not factored in, can actually
undermine positive and sustained development and distort markets. Relevant to our thesis, more
current research extends the resource-based theory to incorporate social and cultural effects. In
their examination of corporate social responsibility (CSR), McWilliams and Siegel (2011)
suggest that rather than being purely motivated to create only social value, CSR activities create
some combination of social value and sustainable competitive advantage. They explain that CSR
could be thought of as creating positive externalities, where “an externality is defined as the
impact of an economic agent’s actions on the well-being of a bystander” (pg. 4). Similarly,
Maurer, Bansal and Crossan (2011: 432) suggest that “…firms risk eroding their economic value
by inadvertently developing strategies that disagree with the social values in their organizational
field” and go on to suggest that firms act to build value bridges between social issues to generate
positive social influences on their strategic objectives.
There are a number of activities within microfinance that act to create social value or
positive externalities. For example, Becchetti and Conzo (2011: 265) suggest that “…the act of
conferring a loan has the indirect effect of signaling the trustworthiness of the borrower”, a
positive externality. Borrowers whose businesses employ others in the community engender a
cascading a positive effect on the families of even those who are not directly involved in the
microloan transaction. Women borrowers, who traditionally make up the larger majority of
those benefitting from modern microfinance since the inception of Grameen Bank (Dowla &
Barua, 2006), very typically use the proceeds of their business to pay for school fees and books
for their children, the education of whom helps to break the cycle of poverty that afflicts
impoverished families (Zaman, 1998). These positive externalities may derive from the activities
generated by either for-profit or not-for-profit MFIs. Nonetheless, we suggest it is more likely
that reporting rubrics and impact assessments for the socially-oriented MFI would favor
inclusion of those positive externalities that represent creation of social value, while the profit-
focused MFI would favor measures of economic value creation that are also more quantifiable.
Audiences for these reports generated by for-profit and not-for-profit MFIs would also differ,
urging performance outcomes geared respectively toward positive ROI or positive social
outcomes.
Interestingly, not only does the transformation from socially-oriented to commercial MFI
create different impacts on market participants in the Base of the Pyramid -- it also brings about
more scrutiny and calls for transparency around issues that have plagued the industry, such as
real or effective interest rates. With the advent of for-profit MFIs dominating the landscape, the
reality of the fact that larger loans will generate profit at the same interest rate that a smaller loan
will generate a loss has hit home. In order to make smaller microloans sustainable for the
financial institution, the only seemingly viable solution is to raise the interest rate. Yet, reporting
high interest rates will lower the reputation of the MFI, so often the reported or nominal rate of
interest obscures fees and add-ons (e.g., one-time upfront fees and compulsory savings accounts)
that render the real cost of the loan to the client significantly higher. This is exacerbated by the
information asymmetries characteristic of BOP markets, where borrowers are typically not
financially literate and therefore may be unable to uncover the true interest rate attached to their
loan.
A stronger push for regulation is the unintended and perhaps counter-intuitive
consequence of this trend. Regulation carries its cost, but has also worked to control excesses
(market imperfections) in the industry that can be attributed to MFIs from both ends of the
continuum, but that have come to light with the advent of an increasing number of
commercialized MFIs entering the playing field. Informal regulation has appeared as well in the
form of industry ethics codes, such as the Pocantico Declaration – an effort launched by
Deutsche Bank AG, the Boulder Institute and Consultative Group to Assist the Poor (CGAP)
with the goal to enhance MFI services and promote transparency.
These observations about the role that different resource bases have on a number of
different factors related to the market impact of an MFI leads us to the following proposition:
P4: Differential resources and capabilities in the for-profit and not-for-profit MFI
sectors result in different Market Impacts
2.4 Model and Examples
The individual factors discussed in sections 2.1, 2.2 and 2.3 can be consolidated into a
model of strategic intent and differential resource accumulation in MFIs (see Figure 1).
Differences in strategic intent drive organizations to utilize their resources in different ways and
this results in different performance outcomes and different impacts on customers in the BOP.
The combination of strategic intent and the resource-based view provides a theoretical
understanding of the heterogeneity of performance in different MFIs.
- - - - - - - - - - - - - - - - - - - - -
Insert Figure 1 about here
- - - - - - - - - - - - - - - - - - - -
This heterogeneity can be further explicated by examining representative examples of
different MFIs along the continuum of strategic intents that was presented earlier in section 2.1.
Table 1 illustrates the differences we have described in the strategic intent, organizational
elements, resource pools, stated performance outcomes and market impacts of MFIs operating at
different points along the continuum from social mission-driven to profit-driven MFI. The focus
of this inquiry is BOP markets, and that is reflected in the examples and notations in the Table.
One benefit of this model and the analysis of the firms along the continuum, is that we might
posit more detailed extensions to propositions 3 and 4 above based on the categories outlined in
the table. For example, resources and capabilities that are strongly focused on commercial
intent are more likely to drive positive market impacts in concentrated (urban) locations with
greater volumes of loans, and to the “better of poor” in BOP markets that offer more favorable
risk profiles (extending Proposition 4). At the same time, success with for-profit resources and
capabilities is more likely to be measured by lowered default rates and higher ROI (extending
Proposition 3). In a similar fashion, non-profit or socially oriented resources and capabilities
will drive positive market impacts in less concentrated areas and to the poorest of the poor in
BOP markets, with less attention to risk of default (extending Proposition 4). Success with Non-
profit resources and capabilities will be measured by social improvements (education, health,
female empowerment), and community development.
- - - - - - - - - - - - - - - - - - - -
Insert Table 1 about here
- - - - - - - - - - - - - - - - - - - -
3.0 THE DYNAMICS OF MFI MISSION DRIFT
The preceding discussion suggests a theoretical model that shows how changes in
strategic intent build MFIs with differing resources and capabilities. This is useful in
understanding how different MFIs along a continuum may expect different kinds of performance
outcomes and have different impacts on BOP markets. In this section of the paper, we show that
the dynamics of this model help to explain the issue of mission drift in MFIs.
- - - - - - - - - - - - - - - - - - - - -
Insert Figure 2 about here
- - - - - - - - - - - - - - - - - - - -
Mission drift is defined by Cull et al. (2007) as the phenomenon whereby microlending
banks moved from their objective function of serving the poorest of the poor to one of
optimizing commercial success. Importantly, we emphasize the concept of “perceived” mission
drift given that there are studies suggesting that mission drift, as measured by depth and breadth
of outreach as well as impact, is not obtaining among selected samples (for example, Cull et al.,
2007; Mersland & Strøm, 2010). Nonetheless, as perceived mission drift operates to extend the
professed gap between originally stated and newly stated preferences that fit changing goals with
respect to performance outcomes and market impacts, key stakeholders express dismay and
disappointment at the direction in which MFIs are moving. For example, one sign of mission
drift beyond the movement away from more rural borrowers is that commercial microlenders are
targeting fewer women, the traditional focus of the social pioneers in the industry. One study by
Women's World Banking, a network of microfinance institutions in 29 countries, examined what
happened at 27 outfits as they morphed from non-governmental (typically not-for-profit)
organizations into regulated financial institutions, and found that they often end up lending to a
smaller percentage of women — the very people they are often started to help. Results of the
study indicated that over five years, the percentage of clients who were women moved from an
average of 88% to 60% (Frank, 2008: 13). Moreover, there is general consensus that the “better
off poor” tend to benefit more from commercialization of MFIs than the “starkly poor” (Hulme
& Mosley, 1996; Coleman, 1999; Copestake, Dawson, Fanning, McKay & Wright-Revolledo,
2005). This may be due to the fact that innovative microfinance strategies for BOP markets rely
on the provision of products and services that consumers find acceptable, are aware of, and deem
to be affordable and available (Anderson & Markides, 2007: 84); yet, the harshest cases of
poverty involve consumer communities that are unaware of microfinance, and that are largely
neglected by existing microfinance distribution channels.
The model of section 2.0 begins to explain why microfinance institutions that transform
themselves from a not-for-profit to a for-profit orientation would experience what many in the
field call mission drift. In particular, it is the dynamic aspects of the model that provide a fuller
explanation. When an organization initially changes its strategic intent from socially-oriented to
commercially-oriented, it is likely to alter its mission statement and performance objectives (see
proposition 2). Therefore:
P5: MFIs that move into the for-profit sector will alter their strategic intent and as a
result will experience what is perceived as mission drift.
As the MFI begins this transition process, it holds resources that are focused on
performance and market impact objectives that are socially-oriented, so it is unlikely to be
initially successful at more commercially-oriented goals. Strategy dynamics suggests that the
performance of an organization depends on the level and nature of resources held by the
organization and that it is only through changes to resources that changes in future performance
are possible (Warren, 1999). In other words, it is the accumulation of resources through time
that drives changes in performance. However, the immobility of resources (Barney, 1991),
isolating mechanisms of competitive firms (Mahoney & Pandian, 1992) and the fact that firms
have difficulty in development and utilizing dynamic capabilities (Grant, 1996; Zollo & Winter,
2002) suggests that when MFIs alter their strategic intent from not-for-profit to for-profit, there
is a time lag in terms of performance outcomes. At the same time, as the focus shifts from
socially-oriented to commercially-oriented, achievement of socially-oriented performance goals
may suffer. Hence, mission drift arises from multiple sources: from the perception of resources
being developed in commercial areas; from a lack of scalable results or commercial performance
and from some likely degradation of success in socially-oriented performance outcomes.
As time progresses, the new strategic intent and continued resource allocation decisions
focused on commercially-oriented performance outcomes begin to have an impact on the kinds
of resources held by the MFI and the market impacts on the BOP (as we suggest in Table 1).
While this change may mean that performance-related goals of the organization are beginning to
be achieved, changes in the types of products offered and the types of MFI customers reached
may further enhance the perception of mission drift. It is not until the transitioning MFI begins
to achieve some kind of growth in the scale of its operations that might offset a change in the
breadth of the MFI customers reached, thus counteracting perceptions of mission drift.
We argue that when targeting BOP markets, the MFI’s strategic intent would ideally
balance for-profit objectives with poverty alleviation goals, and capture resources and
capabilities best aligned with both of those aims. Hence, we propose that the optimal approach
to addressing the needs of BOP markets is a midpoint in this continuum, where an organization
has as its goal a balance between poverty alleviation and an efficiency outcome gained through
market mechanisms. It is at this point that an organization is most likely to develop both
commercial scale and significant social impact. We suggest that when MFIs successfully
develop the necessary resources and capabilities to deliver on a balanced approach, the
perception of mission drift will fade or diminish. Others have suggested that an added benefit of
this focus on poverty alleviation is a reinforcing effect on performance due to the elimination of
conflict (Tashman & Marano, 2010). Overshooting this balance and developing resources and
capabilities that are commercial in nature, while at the same time neglecting the MFIs socially-
oriented skills, capabilities and attendant expectations from stakeholders will also reinforce the
perception of mission drift.
P6: MFIs that move into the for-profit sector will develop resources and capabilities that
match their altered strategic intent and this will result in reinforcing perceptions of
mission drift.
We further suggest that given the often incompatible nature of the twin goals of poverty
eradication (social performance) and profit-making (financial performance), the alignment of
these goals may be best achieved not within one or the other institution, but rather through a
cross-sector collaboration between organizations with different strategic intents, distinguishable
capabilities and resources, and variable performance targets. This may require the MFI to
possess some form of alliance management capability in order to be successful (Schilke &
Goerzen, 2010), since corporate and non-profit managers may view any collaboration through
completely different cognitive lenses (Lucea, 2010). Particularly in underdeveloped BOP
markets, organizations may find it necessary to partner with organizations from developed
economies to build the requisite resources (Acquaah, 2009). This approach may result in a more
expedient way to create the necessary resources and capabilities to deliver on the organizations
performance objectives and market impacts and to minimize perceptions of mission drift and
leads to the following proposition. At the same time, the nature of these cross-sectoral
partnerships is likely to change through time, either intentionally (LeBer & Branzei, 2010) as
strategic intent morphs or unintentionally (Levy, Brown & de Jong, 2010) as resources and
capabilities are acquired.
P7: MFIs that move into the for-profit sector using joint ventures or partnerships to
acquire for-profit resources and capabilities will experience diminished perceptions of
mission drift, thus moderating the relationships posed in P5 and P6.
4.0 DISCUSSION AND CONCLUSION
The debate rages on as to the respective benefits of profit-focused and socially-oriented
MFIs to developing societies. Critics claim that profit-minded MFIs, to expand their outreach
and loan portfolios, tap commercial and quasi-commercial financing, which requires consistent
profitability for their investors. They point to the fact that cost-savings are not being passed on
to clients through lowered interest rates, and that cutbacks in social services, infrastructure, staff
training and tracking of social outcomes are common. On the other hand, one could argue that
some MFIs are not commercial enough – that their commitment to social justice keeps them
from maximizing their potential profitability, limiting their ability to attract needed investment to
meet the growing demand for services. While a goal for many MFIs is to move from credit-only
services to a model where social services and interventions accompany the loan, the financial
implications of implementing a combined strategy of microfinance and social development is
quite heavy. Programs in primary health care, sanitation and a minimum level of basic education
involve huge cost that many NGOs or other not-for-profit microfinance organizations will find
too difficult to bear. The investor-funded, for-profit MFI may serve an important role in this
regard.
In this paper we have focused on the transformation of a socially-oriented MFI to a
profit-driven one1, and looked at some of the intervening points that might be observed along
this continuum. The model we developed, and its attendant propositions, suggests that this
transformation cannot spell strategic success for the MFI unless and until it is accompanied by a
reconfiguration of internal resources and capabilities congruent with the new strategic intent, and
the articulation of a new set of performance targets that are subject to correct measurement.
While the alignment of strategic intent, resources and capabilities and performance targets and
measures may lead to the desired outcomes that would be interpreted in the market as a sign of
strategic success, the perception of “mission drift” by key stakeholders and microfinance
watchdog agencies may thwart the firm’s sustained success in BOP markets.
Perhaps the solution lies in re-imagining microfinance, not as a product, but as a platform
for delivering a host of financial and non-financial products and services to the world’s poorest.
Just as in the commercial world, not all of these non-financial products need to be profitable.
Socially-oriented products and services and the positive externalities they create can attract
clients, strengthen relationships and improve clients’ ability to manage follow-on loans. The
1 It should be noted that while our focus has been on the drift from NFP to for-profit MFIs, a theoretical argument
could be lodged to speak to movement in the opposite direction – transformation of a for-profit MFI to a NFP,
socially-oriented institution. In reality, examples of a movement in this direction were not evident in the literature.
capabilities of both for-profit and not-for-profit MFIs can come to bear on these activities, with
collaborative partnerships between the two offering the optimal combination of services to meet
the needs of clients at the BOP. Cross-sector partnerships have the potential to create both
economic value and social value, which can be “mutually reinforcing” (Dahan, Doh, Oetzel &
Yaziji, 2010: 328). Moreover, as Copestake (2007: 1734) reasons, “…notwithstanding the
stronger profit orientation of many mainstream financial institutions, there is scope for them to
review their social performance more systematically both out of enlightened self-interest and in
response to public policy”. Similarly there is room for NFP MFIs to better review their financial
performance to ensure compliance with emerging regulations and to achieve desired efficiencies.
With stronger monitoring within institutions and stronger ties across sectors in the industry, the
BOP markets can benefit from great access to and awareness of affordable microfinance
products that will improve their lives.
REFERENCES
Abdelnour, S. & Branzei, O. 2010. Fuel-efficient stoves for Darfur: the social construction of
subsistence marketplaces in post-conflict settings. Journal of Business Research, 63:
617-629.
Acquaah, M. 2009. International joint venture partner origin, strategic choice, and performance:
A comparative analysis in an emerging economy in Africa, Journal of International
Management, 15(1): 46-60.
Anderson, J. & Markides, C. 2007. Strategic innovation at the base of the pyramid. MIT Sloan
Management Review, 49: 83-88.
Augustine, D. (in press). Good Practice in Corporate Governance: Transparency, Trust and
Performance in the Microfinance Industry, Business and Society, DOI:
10.1177/0007650312448623
Barney, J. 1991. Firm resources and sustained competitive advantage. Journal of
Management, 17(1): 99-120.
Becchetti, L. & Conzo, P. 2011. Enhancing capabilities through credit access: creditworthiness
as a signal of trustworthiness under asymmetric information. Journal of Public
Economics, 95: 265-278.
Chahine, S. & Tannir, L. 2010. On the social and financial effects of the transformation of
microfinance NGOs. Voluntas, 21: 440-461.
Chowdhury, T.A., & Chowdhury, S.S. 2011. Performance evaluation of agricultural banks in
Bangladesh. International Journal of Business and Management, 6(4): 75-89.
Christen, R.P. 2001. Commercialization and mission drift: the transformation of
microfinance in Latin America. Washington, D.C.: CGAP (Consultative Group to
Assist the Poor).
Coleman, B.E. 1999. The impact of group lending in northern Thailand, Journal of
Development Economics, 60: 105-141.
Conner, K.R. & Prahalad, C.K. 1996. A resource-based theory of the firm: knowledge versus
opportunism. Organization Science, 7(5): 477-501.
Copestake, J. 2007. Mainstreaming microfinance: Social performance management or mission
drift? World Development, 35(10): 1721-1738
Copestake, J., Dawson, P., Fanning, J.P., McKay, A. & Wright-Revolledo, K. 2005. Monitoring
the diversity of the poverty outreach and impact of microfinance: A comparison of
methods using data from Peru. Development Policy Review. 60(1): 703-723.
Crawford-Mathis, K., Darr, S., & Farmer, A. 2010. The Village Network: partnership and
collaboration to alleviate poverty in subsistence marketplaces. Journal of Business
Research, 63: 639-642.
Cull, R., Demirguc-Kunt, A., & Morduch, J. 2007. Financial performance and outreach: A global
analysis of lending microbanks,” Economic Journal, 117 (February): F107-F133.
Dahan, N.M., Doh, J.P., Oetzel, J., & Yaziji, M. 2010. Corporate-NGO collaboration: co-
creating new business models for developing markets. Long Range Planning, 43: 326-
342.
Dowla, A. & Barua, D. 2006. The poor always pay back: The Grameen II story. Bloomfield,
CT: Kumarian Press.
Easterly, L. & Miesing, P. 2009. NGOs, Social Venturing and Community Citizenship
Behavior, Business and Society, 48(4): 538-564.
Elaydi, R. & Harrison, C. 2010. Strategic motivations and choice in subsistence markets.
Journal of Business Research, 63: 651-655.
Fernando, N.A. 2004. Micro success story? Transformation of nongovernment organizations
into regulated financial institutions. Manila, Philippines: Asian Development Bank.
Frank, C. 2008. Stemming the tide of mission drift: Microfinance transformations and the double
bottom line. Women World Banking Focus Note, 2008: 1-23.
Gadiesh, O. & Gilbert, J.L. 2001. Transforming corner-office strategy into frontline action.
Harvard Business Review, 79(5): 72-79.
Gibbons, D.S. & Meehan, J.W. 1999. The microcredit summit’s challenge: working toward
institutional financial self-sufficiency while maintaining a commitment to serving the
poorest families. Journal of Microfinance, 1(1): 131-192.
Grant, R.M. 1996. Prospering in dynamically-competitive environments: organizational
capability as knowledge integration. Organization Science, 7(4): 375-387.
Grassl, W. 2011. Hybrid forms of Business: The Logic of Gift in the Commercial World,
Journal of Business Ethics, 100: 109-123.
Gutierrez-Nieto, B., Serrano-Cinca, C., & Molinero C.M. 2007. Microfinance institutions and
efficiency. Omega, 35: 131-142.
Hamel, G. & Prahalad, C.K. 2005. Strategic intent. Harvard Business Review, 83(7/8): 148-
161.
Hermes, N., Lensink, R., & Meesters, A. 2011. Outreach and efficiency of microfinance
institutions. World Development, 39(6): 938-948.
Hill, T.L. & Mudambi, R. 2010. Far from Silicon Valley: How emerging economies are re-
shaping our understanding of global entrepreneurship, Journal of International
Management, 16(4): 321-327.
Hudon, M. 2008. Norms and values of the various microfinance institutions. International
Journal of Social Economics, 35(1/2): 35-48.
Hulme, D. & Mosley, P. 1996. Finance Against Poverty. London: Routledge.
Jones, M.B. 2007. The multiple sources of mission drift, Nonprofit and Voluntary Quarterly,
36: 299-307.
Le Ber, M.J. & Branzei, O. 2010. (Re)Forming Strategic Cross-Sector Partnerships: Relational
Processes of Social Innovation. Business and Society, 49(1): 140-172.
Leonard-Barton, D. 1992. Core capabilities and core rigidities: a paradox in managing new
product development. Strategic Management Journal, 13: 111-125.
Levy, D.L., Brown, H.S. & de Jong, M. 2010. The Contested Politics of Corporate
Governance: The Case of the Global Reporting Initiative, Business and Society, 49(1):
88-115.
London, T., Anupindi, R., & Sheth, S. 2010. Creating mutual value: lessons learned from
ventures serving base of the pyramid producers. Journal of Business Research, 63: 582-
594.
Lovas, B. & Ghoshal, S. 2000. Strategy as guided evolution. Strategic Management Journal,
21(9): 875-896.
Lucea, R. 2010. How we see them versus how they see themselves: A cognitive perspective of
Firm – NGO Relationships, Business and Society, 49(1): 116-139.
Mahoney, J.T. & Pandian, J.R. 1992. The Resource-based View within the Conversation of
Strategic Management, Strategic Management Journal, 13(5): 363-380.
Mantere, S. & Sillince, J.A.A. 2007. Strategic intent as a rhetorical device. Scandinavian
Journal of Management, 23: 406-423.
Maurer, C.C., Bansal, P., & Crossan, M.M. 2011. Creating economic value through social
values: introducing a culturally informed resource-based view. Organization Science,
22(2): 432-448.
McWilliams, A. & Siegel, D.S. 2011. Creating and capturing value: strategic corporate social
responsibility, resource-based theory, and sustainable competitive advantage. Journal of
Management, 37(5): 1480-1495.
Mersland, R. & Strøm, R.O. 2010. Microfinance mission drift? World Development, 38(1): 28-
36.
Michira, M. 2011. “Ex KCB Boss to Head Jamii Bora Bank”, Business Daily (Nairobi),
November 21, 2011.
Noda, T. & Bower, J.L. 1996. Strategy making as iterated processes of resource allocation.
Strategic Management Journal, 17: 159-192.
Prahalad, C.K. 2004. The Fortune at the Bottom of the Pyramid: Eradicating Poverty
Through Profit. Upper Saddle River, NJ: Wharton School Publishing.
Prahalad, C.K. & Hammond, A. 2002. Serving the world’s poor, profitably. Harvard Business
Review, 80(9): 48-57.
Reficco, E. & Marquez, P. (in press). Inclusive Networks for building BOP Markets. Business
and Society, doi:10.1177/0007650309332353.
Rumelt, R. 1984. Towards a strategic theory of the firm. In R. Lamb (ed.), Competitive
Strategic Management: 556-570, Englewood Cliffs, NJ, Prentice-Hall.
Schilke, O. & Goerzen, A. 2010. Alliance Management Capability: An Investigation of the
Construct and its Measurement. Journal of Management, 36(5): 1192-1219.
Smith, W.K., Binns, A., & Tushman M.L. 2010. Complex business models: managing strategic
paradoxes simultaneously. Long Range Planning, 43: 448-461.
Tashman, P. and Marano, V. 2010. Dynamic Capabilities and Base of the Pyramid Strategies.
Journal of Business Ethics, 89: 495-514.
Tchakoute-Tchuigoua, H. 2010. Is there a difference in performance by the legal status of
microfinance institutions? The Quarterly Review of Economics and Finance, 50: 436-
442.
Viswanathan, M. & Rosa, J.A. 2010. Understanding subsistence marketplaces: toward
sustainable consumption and commerce for a better world. Journal of Business
Research, 63: 535-537.
Viswanathan, M. & Sridharan, S. 2009. From subsistence marketplaces to sustainable
marketplaces: a bottom-up perspective on the role of business in poverty alleviation. Ivey
Business Journal, 73(2): 1-15
Warren, K. 1999. The Dynamics of Strategy. Business Strategy Review, 10(3): 1-16.
Weidner, K.L., Rosa, J.A., & Viswanathan, M. 2010. Marketing to subsistence consumers:
lessons from practice. Journal of Business Research, 63: 559-569.
Weisbrod, B.A. 2004. The pitfalls of profits, Stanford Social Innovation Review, 2(3): 40-47.
Wernerfelt, B. 1984. A resource based view of the firm. Strategic Management Journal, 5: 171-
180.
Zollo, M. & Winter, S.G. 2002. Deliberate Learning and the Evolution of Dynamic
Capabilities, Organization Science, 13(3): 339-351.
Zaman, H. 1998. Who benefits and to what extent? An evaluation of BRAC’s micro-credit
Program. University of Sussex, D.Phil thesis, Sussex, England.
FIGURE 1 – A MODEL OF STRATEGIC INTENT AND DIFFERENTIAL RESOURCE
ACCUMULATION IN MFIS
P4
P3
P1
STRATEGIC
INTENT
PERFORMANCE
OUTCOMES
BOP MARKET
IMPACTS
RESOURCES
& CAPABILITIES
P2
FIGURE 2
A MODEL OF MISSION DRIFT IN THE MFI FIELD: THE ROLE OF STRATEGIC INTENT
ON CAPABILITY DEVELOPMENT AND PERFORMANCE OUTCOMES
Strategic Intent
2
Commercial MFI
Mission
drift
Strategic Intent
1
Socially-Oriented MFI
STAKEHOLDER
Social Performance Goals
Profit Performance Goals
Unique Socially-oriented
Resources and Capabilities
Competitive Advantage
Unique Financially-oriented
Resources and Capabilities
Competitive Advantage
Performance Outcomes & Market
Impacts
Markets Served :
Rural, Women, Starkly
Poor
Reported Measures:
Social Externalities and
Benefits to Community
Performance Outcomes & Market
Impacts
Markets Served :
Urban, Lower % of women,
“Better off Poor”
Reported Measures:
Economic Externalities and
Returns to Investors
Cross-Sector Partnerships (Moderator)
P2
P1
P1
P2
P7
P3 & P4
P3 & P4
P7
Time
P5
P6
TABLE 1
MFI CONTINUUM IN BOP MARKETS – STRATEGY, RESOURCES, ORGANIZATION, PERFORMANCE
CONTINUUM
POSITION
SOCIAL
INNOVATORS
SOCIALLY-
ORIENTED,
FINANCIALLY
RESPONSIBLE
PROFIT-
ORIENTED,
SOCIALLY
RESPONSIBLE
FORMAL
COMMERICAL
MICROLENDERS
EXAMPLE FIRM
GRAMEEN BANK;
JAMII BORA TRUST –
KENYA (BEFORE
MERGING WITH CITY
FINANCE BANK);
MOBILE BANKING
MODELS
BRAC; ASA
BANCOSOL
(SUCCESS);
CORPOSOL
(FAILURE); JAMII
BORA (NEW
INCARNATION AS
“JAMII BORA
BANK”2,
COMMERCIAL BANK)
BANEFE – CHILE;
BRI – INDONESIA;
CITIBANK
STRATEGIC INTENT
ALLEVIATE
POVERTY;
SOCIAL VALUE
CREATION
FOCUS ON
POVERTY
ALLEVIATION
WITH EXPANSION
INTO BROADER
ARRAY OF
SERVICES &
IMPACT
FOCUS ON
SCALE AND
SELF-
SUFFICIENCY
THROUGH RISK
MANAGEMENT
GROW PROFITS;
ECONOMIC
VALUE CREATION
DECISION-MAKING
STYLE
BOTTOM-UP
GRASSROOTS
COLLABORATIVE
PARTICIPATIVE
TOP-DOWN
FINANCIAL
STRUCTURE
HEAVILY
SUBSIDIZED; DONOR-
DRIVEN AND GRANT-
SEEKING
BORROWER
COMMUNITIES
CONTRIBUTE TO
THEIR OWN LOANS-
SUBSIDIES
LIMITED TO FUND
START-UP
EMPHASIZE
SAVINGS;
BORROWER
ACCOUNTABILIT
Y
INCREASINGLY
SELF-
SUFFICIENT;
INVESTOR-
SEEKING;
SUBSIDIES VERY
LIMITED;
DEFAULT RATES
SCRUTINIZED
HIGHLY SELF-
SUFFICIENT;
INVESTOR-
DRIVEN FOR
START-UP;
CONTINUED
OPERATIONS
DEPEND ON
HEALTHY ROIs
AND ZERO
DEFAULT TARGET
2 Jamii Bora Bank hired former Kenya Commercial Bank Group deputy chief executive officer as its new CEO and
has “sold a significant stake to a consortium of investors to help it move to the profit zone” (Michira, 2011)
CONTINUUM
POSITION
SOCIAL
INNOVATORS
SOCIALLY-
ORIENTED,
FINANCIALLY
RESPONSIBLE
PROFIT-
ORIENTED,
SOCIALLY
RESPONSIBLE
FORMAL
COMMERICAL
MICROLENDERS
EXAMPLE FIRM
GRAMEEN BANK;
JAMII BORA TRUST –
KENYA (BEFORE
MERGING WITH CITY
FINANCE BANK);
MOBILE BANKING
MODELS
BRAC; ASA
BANCOSOL
(SUCCESS);
CORPOSOL
(FAILURE); JAMII
BORA (NEW
INCARNATION AS
“JAMII BORA
BANK”2,
COMMERCIAL BANK)
BANEFE – CHILE;
BRI – INDONESIA;
CITIBANK
RESOURCES /
CAPABILITIES
UNIQUE LOCAL
MARKET
KNOWLEDGE;
DONOR ACCESS;
SOCIAL
COLLABORATION
CAPABILITIES; ABLE
TO IDENTIFY AREAS
OF HIGH NEED;
GROUP LENDING
EXPERTS
BROADER
KNOWLEDGE
BASE EXTENDS
TO PROVISION OF
SUPPLEMENTAL
SERVICES;
FINANCIAL
TRAINING OF
STAFF AND
BORROWERS;
HIGHER
MOBILITY OF
ASSETS
PRODUCT
KNOWLEDGE
FOCUSES ON
SAVINGS AND
OTHER
SOPHISTICATED
LENDING TOOLS;
TRAINING ON
RISK
MITIGATION;
PORTFOLIO
DIVERSIFICATIO
N
EFFICIENCIES IN
LOAN PROCESSES,
RISK
MANAGEMENT;
CAPITAL MARKET
ACCESS;
COMMERCIAL
BANKING
CAPABILITIES;
INDIVIDUAL
LENDING
EXPERTS
ORGANIZATIONAL PERFORMANCE
PROFITS
UNPROFITABLE,
UNCERTAIN
FINANCIAL
SUSTAINABILITY
LIMITEDLY
PROFITABLE,
RELIANT ON
DONORS
PROFITABLE,
SEEK SELF-
SUFFICIENCY,
LOWER
DEFAULT
RATES
HIGHLY
PROFITABLE,
UNCERTAIN
SOCIAL
SUSTAINABILITY
RESOURCE
EFFICIENCY
LOW
MODERATE
HIGH
VERY HIGH
GROWTH
STAGNANT TO LOW
SLOW
RELATIVELY
RAPID
FAST AND STEEP
MARKET IMPACT
MARKET FOCUS
STARKLY POOR,
RURAL, HIGH RISK;
HIGHER % WOMEN
“LOWER CLASS
POOR” OUTREACH
TO LOWER RISK
BORROWERS
“MIDDLE CLASS
POOR” SOME
RURAL
OUTREACH
WITH RISK
MITIGATION
“BETTER OFF
POOR” URBAN,
LOW RISK; LOWER
% WOMEN
CONTINUUM
POSITION
SOCIAL
INNOVATORS
SOCIALLY-
ORIENTED,
FINANCIALLY
RESPONSIBLE
PROFIT-
ORIENTED,
SOCIALLY
RESPONSIBLE
FORMAL
COMMERICAL
MICROLENDERS
EXAMPLE FIRM
GRAMEEN BANK;
JAMII BORA TRUST –
KENYA (BEFORE
MERGING WITH CITY
FINANCE BANK);
MOBILE BANKING
MODELS
BRAC; ASA
BANCOSOL
(SUCCESS);
CORPOSOL
(FAILURE); JAMII
BORA (NEW
INCARNATION AS
“JAMII BORA
BANK”2,
COMMERCIAL BANK)
BANEFE – CHILE;
BRI – INDONESIA;
CITIBANK
POVERTY
ALLEVIATION
LIMITED BREADTH,
SEEK INCREASED
DEPTH - THWARTED
BY LOW
EFFICIENCIES
LIMITED
VOLUMES, HIGHER
IMPACT AREAS
REACHED
LIMITED DEPTH,
LARGER LOANS
TO MORE
BORROWERS
INCREASED
BREADTH, VERY
LIMITED DEPTH
EXTERNALITIES
POSITIVE SOCIAL
EXTERNALITIES
SOCIAL
EXTERNALITIES
PREDOMINATE
ECONOMIC
EXTERNALITIES
PREDOMINATE
POSITIVE
ECONOMIC
EXTERNALITIES
REGULATORY
OVERSIGHT
LIMITED CALL FOR
REGULATION
INFORMAL
ETHICAL CODES;
CAPITAL FUNDING
FOCUS
PRESSURE FOR
FORMAL
REGULATION
;
FOCUS ON
TRANSPARENC
Y OF PROCESS
STRONG FORMAL
REGULATION;
FOCUS ON
TRANSPARENCY
OF PROCESS
