Mainstreaming Microfinance: Social Performance Management or Mission Drift?

Copestake, James

doi:10.1016/j.worlddev.2007.06.004

Cited by 294 publications

(230 citation statements)

References 32 publications

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“…Therefore in Latin America now regular commercial institutions have started operations in the microfinance industry and this is a main reason of growing competition among Latin Americans institutions [2]. The same result is given by another study conducted by Copestake (2007) [3].…”

Section: Literature Reviewsupporting

confidence: 55%

Commercialization and Mission Drift — A Cross Country Evidence on Transformation of Microfinance Industry

Abrar

Javaid

2014

IJTEF

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Abstract-The present study examine the most important issue faced by microfinance institutions around the world in this present era that is the commercialization trend and drifting size. This study will analyze whether the commercialization from their primary function of serving poor class of the society to moving towards better off customer in order to satisfy their urge of financial benefits. This study is using average loan size as proxy of mission drift with operational self sufficiency as profit measure, productivity as cost measure and repayment risk as independent variables in the study .The study also accommodate age ,size as control variables .Data has been taken from all the six regions of the world from 72 countries for the years 2003 to 2009.The econometric evidence using random effect estimation technique reveals that profitability and risk are positively related with average loan size where as cost is inverse relation with size of loan . The impact of age and size varies from region to region.

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Section: Literature Reviewsupporting

confidence: 55%

Commercialization and Mission Drift — A Cross Country Evidence on Transformation of Microfinance Industry

Abrar

Javaid

2014

IJTEF

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“…The success of an institution is measured by its progress towards operational self-sufficiency, while a positive impact on the client is assumed (Hulme & Mosley, 1996;Otero, 1999;Rhyne, 2001;Copestake, 2007;Hammill et al, 2008). The only way to attract the requisite financial resources is by choosing the optimal financing mix between private and public capital.…”

Section: Institutionist Approachmentioning

confidence: 99%

Microfinance Complementarity and Trade-Off between Financial Performance and Social Impact

Ngo¹

2015

IJEF

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There is a widespread belief that providing access to financial services (microfinance) or reaching the poor with microcredit are perfect solutions to establish a sustainable economy or to help kick-start a bottom-up recovery and social development animated by the poor themselves through self-employment and microenterprises. Microfinance has therefore become an important instrument for poverty alleviation and for improving the welfare of the poor in both developing and transition economies. Due to the difficulty of targeting the poor, who have a lack of collateral, microfinance institutions (MFIs) are called on to achieve a balance between social impact (poverty reduction) and positive financial performance. This paper assumes that the financial objectives of MFIs operate in opposition to each other and that a trade-off is inevitable. Unbalanced panel data of MFIs for the period 1995-2013 has been extracted from the MIX Market website. In order to solve the endogeneity problem, this paper employed the dynamic system GMM (generalized method of moments) of Blundell and Bond (1998) that is considered as the new methodology currently in use in the empirical investigation of the financial performance in banking and finance. This paper outlines some of the parameters that affect the nature of trade-offs and complementarities between social and financial objectives in microfinance performance, and provides empirical evidence from cross-country analysis. Sustainability has a positive link with outreach. MFIs tend to expand their outreach in order to achieve sustainability, based on the advantages of the economies of scale. However, a threshold which makes the trade-offs or complementarities between financial and social objectives reverse if it goes beyond a certain point is also observed.

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“…Building on a comprehensive literature review from individual MFI experiences by Fidler (1998), on pioneering theoretical work by Copestake (2007) and Ghosh-Van Tassel (2008), and on recent empirical work by Cull et al (2008), this paper sheds light on a poorly understood phenomenon in microfinance which is often referred to as "mission drift": A tendency reviewed by numerous microfinance institutions to extend larger average loan sizes in the process of scaling -up. We argue that this phenomenon is not driven by transaction cost minimization alone.…”

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confidence: 98%

On Mission Drift in Microfinance Institutions

Pérez‐Armendáriz

Szafarz

2011

The Handbook of Microfinance

174

151

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This paper sheds light on a poorly understood phenomenon in microfinance which is often referred to as a "mission drift": A tendency reviewed by numerous microfinance institutions to extend larger average loan sizes in the process of scaling-up. We argue that this phenomenon is not driven by transaction cost minimization alone. Instead, poverty-oriented microfinance institutions could potentially deviate from their mission by extending larger loan sizes neither because of "progressive lending" nor because of "cross-subsidization" but because of the interplay between their own mission, the cost differentials between poor and unbanked wealthier clients, and region-specific characteristics pertaining the heterogeneity of their clientele. In a simple one-period framework we pin-down the conditions under which mission drift can emerge. Our framework shows that there is a thin line between mission drift and crosssubsidization, which in turn makes it difficult for empirical researchers to establish whether a microfinance institution has deviated from its povertyreduction mission. This paper also suggests that institutions operating in regions which host a relatively small number of very poor individuals might be misleadingly perceived as deviating from their mission. Because existing empirical studies cannot tear apart between mission drift and crosssubsidization, these studies should not guide donors and socially responsible investors pertaining resource allocation across institutions offering financial services to the poor. The difficulty in tearing apart cross-subsidization and mission drift is discussed in light of the contrasting experiences between microfinance institutions operating in Latin America and South Asia. ABSTRACTThis paper sheds light on a poorly understood phenomenon in microfinance which is often referred to as a "mission drift": A tendency reviewed by numerous microfinance institutions to extend larger average loan sizes in the process of scaling-up. We argue that this phenomenon is not driven by transaction cost minimization alone. Instead, poverty-oriented microfinance institutions could potentially deviate from their mission by extending larger loan sizes neither because of "progressive lending" nor because of "cross-subsidization" but because of the interplay between their own mission, the cost differentials between poor and unbanked wealthier clients, and region-specific characteristics pertaining the heterogeneity of their clientele. In a simple one-period framework we pin-down the conditions under which mission drift can emerge. Our framework shows that there is a thin line between mission drift and cross-subsidization, which in turn makes it difficult for empirical researchers to establish whether a microfinance institution has deviated from its poverty-reduction mission. This paper also suggests that institutions operating in regions which host a relatively small number of very poor individuals might be misleadingly perceived as deviating from their mission. Because existing empirical stu...

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Mainstreaming Microfinance: Social Performance Management or Mission Drift?

Cited by 294 publications

References 32 publications

Commercialization and Mission Drift — A Cross Country Evidence on Transformation of Microfinance Industry

Commercialization and Mission Drift — A Cross Country Evidence on Transformation of Microfinance Industry

Microfinance Complementarity and Trade-Off between Financial Performance and Social Impact

On Mission Drift in Microfinance Institutions

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