The Institutional Transformation of Microfinance Institutes: Sustainability at the Expense of the Poorest?

Abstract

The purpose of this paper is to introduce the three different forms of institutional transformation in microfinance - the upscaling-, the downscaling- and the greenfield-approach - and to assess in how far they contribute to a ‘mission drift’ in microfinance, away from providing affordable financial funds to the poorest towards a more profit-oriented business model. With the help of empirical findings in the existing literature on microfinance in Sub-Saharan Africa the main characteristics of these approaches are elaborated, and they are evaluated with respect to the initial aim of microfinance. The results of this paper show that the institutional transformation contributed to a broader implementation and sustainability of microfinance, though institutional transformation implies a certain mission drift. Between the poles of serving the poorest while maintaining self-sufficiency, the upscaling approach performs best, drifting less away from poor parts of the population while still stabilizing the MFI’s economic business model.

Keywords: microfinance, mission drift, institutional transformation, upscaling, downscaling, greenfielding

JEL Classification: G21, I3, F36